REG - Pollen Street Group - Interim Accounts H1 2024
04/09/2024 07:00
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RNS Number : 7858C Pollen Street Group Limited 04 September 2024
4 September 2024
Pollen Street Group Limited Interim Accounts H1 2024
Robust performance and strategic progress with strong AUM growth
Pollen Street Group Limited ("Pollen Steet", together with its subsidiaries,
the "Group") today issues its Interim Report for the six months ended 30 June
2024.
In the first half of 2024 we have continued to build on our strong progress
during 2023 with our fundraising on track and driving growth in Total Assets
under Management ("AuM") and ongoing capital deployment increasing our
Fee-Paying Assets under Management ("FP AuM"). Our balance sheet continues to
support third-party AuM growth, with recent commitments to Private Equity Fund
V and Credit Fund IV.
Highlights for H1 2024: Ongoing growth in AuM
Asset Manager
· Building Fundraising Momentum: Successfully achieved the first
close of Credit Fund IV in March 2024, securing investor commitments,
including SMAs, of approximately c.£0.6 billion. Private Equity V progressing
well with advanced discussions with investors we anticipate meeting our €1
billion target by the year end.
· AUM Growth: Total AUM increased to £4.5 billion as of 30 June
2024 (H1 2023: £3.4 billion), with AUM rising to £4.8 billion as of 31 July
2024 following a further close of Private Equity Fund V together with a
co-invest vehicle in July 2024.
· Ongoing Expansion: The Asset Manager continues to thrive, with
both Private Equity and Private Credit strategies in active fundraising,
capitalizing on robust performance and positioning us for further success.
Investment Company
· Strong Balance Sheet: Our balance sheet remains robust,
reflecting strong performance of our high-quality portfolio with strong levels
of risk adjusted income.
· Strong Cash Flow: Generated £15.8 million in income from Net
Investment Assets in H1 2024, achieving a 9.7% return.
· Enhanced Financial Flexibility: Prudent management and successful
refinancing of term debt have increased financial flexibility while reducing
overall funding costs.
· Strategic Portfolio Allocation: The Group reduced its Investment
Asset portfolio, lowering the net debt-to-tangible-equity ratio to 28% (31 Dec
2023: 54%), providing the liquidity to make increased commitments to Pollen
Street-managed funds. Returns are expected to rise as leverage normalizes as
these commitments are drawn.
Financial Performance
· Operating Profit Growth: The Group's operating profit rose 24% to
£24.1 million in H1 2024 (H1 2023: £19.4 million), driven by a 54% increase
in the Asset Manager segment's FM EBITDA to £8.0 million and growth in the
Investment Company's income on Net Investment Assets to £15.8 million.
· Boosted Shareholder Value: Strategic use of balance sheet capital
for share buybacks has enhanced shareholder value with £10.3 million
allocated to buybacks in the first half of the year.
· Interim dividend of 26.5 pence per share
Future Developments
· Strong Growth Outlook: The Group is well-positioned for continued
growth in H2 2024 and beyond.
· Increasing Fund Management Income: Fund Management Income is set
to grow, with Private Equity Fund V expected to reach its €1 billion target
by the end of 2024 and further capital raises in Credit Fund IV in H2 and in
2025 contributing to continued success.
· Investment Company delivering strong, consistent returns:
Investment company income robust with positive dynamics in a higher interest
rate environment and as fund commitments are drawn.
· On Track Performance: The Group is trading in line with
expectations, reinforcing its positive outlook.
The Interim Accounts can be found on the website
https://ir.pollenstreetgroup.com/investors/financial-information/
(https://ir.pollenstreetgroup.com/investors/financial-information/)
Commenting on the H1 2024 performance, Lindsey McMurray, Chief Executive
Officer, said
"I am very pleased with our strong first-half performance, driven by
impressive growth of our asset management business and good performance from
the investment company. Across both our Private Equity and Private Credit
strategies, we have made strong progress with fundraising and deployment,
positioning us well for market opportunities. As we enter the second half of
2024, we remain confident in our strategic direction and our ability to
deliver attractive shareholder value. Our strong financial performance,
successful fundraising, and deployment position us for continued growth."
- Lindsey McMurray, CEO
About Pollen Street Group Limited
Pollen Street is an alternative asset manager dedicated to investing within
the financial and business services sectors across both Private Equity and
Private Credit strategies. The business was founded in 2013 and has
consistently delivered top tier returns alongside growing AuM.
Pollen Street benefits from a complementary set of asset management activities
focused on managing third-party AuM (the "Asset Manager") together with
on-balance sheet investments (the "Investment Company").
The Asset Manager raises capital from high quality investors and deploys it
into its Private Equity and Private Credit strategies. The strong recurring
revenues from this business enable delivery of scalable growth.
The Investment Company invests in the strategies of the group delivering
attractive risk adjusted returns and accelerating growth in third-party AuM of
the Asset Manager through investing in Pollen Street funds, taking advantage
of attractive investment opportunities and aligning interest with our
investors to grow AuM. Today the portfolio is largely invested in credit
assets with the allocation to Private Equity expect to increase to 30 per cent
in the long term. The portfolio consists of both direct investments and
investments in funds managed by Pollen Street.
POLN is listed on the London Stock Exchange (ticker symbol: POLN). Further
details are available at www.pollenstreetgroup.com
(http://www.pollenstreetgroup.com) .
For investors:
A presentation and Q&A will be held for analysts at 9 AM on 4 September
2024.
The full presentation is available for on the website
https://pollencap.zoom.us/webinar/register/WN_dHGMLEZxR8y7e5LtsZcrmg
(https://pollencap.zoom.us/webinar/register/WN_dHGMLEZxR8y7e5LtsZcrmg)
For further information about this announcement please contact:
Pollen Street - Corporate Development Director
Shweta Chugh
+44 (0)20 3965 5081
Barclays Bank plc - Joint Broker
Neal West / Stuart Muress
+44 (0)20 7623 2323
Investec Bank plc - Joint Broker
Ben Griffiths / Kamalini Hull
+44 (0)20 7597 4000
FGS Global
Chris Sibbald / Anna Tabor
PollenStreetCapital-LON@fgsglobal.com
(mailto:PollenStreetCapital-LON@fgsglobal.com)
Link Company Matters Limited - Corporate Secretary
polncosec@linkgroup.co.uk (mailto:polncosec@linkgroup.co.uk)
Interim Accounts 2024
Pollen Street Group Limited
For the period ended 30 June 2024
Pollen Street at a Glance
About the Pollen Street Business
Pollen Street Group Limited (the "Company" and together with its subsidiaries
the "Group" or "Pollen Street") is an alternative asset manager dedicated to
investing within the financial and business services sectors across both
Private Equity and Private Credit strategies. The business was founded in 2013
and has consistently delivered top tier returns alongside growing assets under
management ("AuM").
Pollen Street benefits from a complementary set of asset management activities
focused on managing third-party AuM (the "Asset Manager") together with
on-balance sheet investments (the "Investment Company").
The Asset Manager raises capital from top tier investors and deploys it into
its Private Equity and Private Credit strategies. The strong recurring
revenues from this business enable us to deliver scalable growth.
The Investment Company invests in the strategies of the Group delivering
attractive risk adjusted returns. The portfolio consists of both direct
investments and investments in funds managed by Pollen Street predominantly in
our credit strategies and a modest exposure to our private equity funds.
Further information on the Pollen Street business can be found on the Group's
website or in the Annual Report and Accounts of Pollen Street Limited as at
and for the year ended 31 December 2023, which are also available on the
website.
Background & Basis of Preparation
Pollen Street Group Limited was established on 24 December 2021, in Guernsey.
On 24 January 2024, the Company became the immediate and ultimate parent of
Pollen Street Limited (previously Pollen Street plc) by way of a scheme of
arrangement pursuant to Part 26 of the UK Companies Act 2006. On 14 February
2024, Pollen Street Limited distributed the entire issued share capital of
Pollen Street Capital Holdings Limited to the Company, this is referred to as
the "Distribution". The Scheme and the Distribution are together referred to
as the "Reorganisation". The Reorganisation is a capital reorganisation and
has been accounted for using the book-value method. This method applies
retrospectively, meaning that the interim financial statements are restated as
if the Reorganisation had occurred at the beginning of the earliest period
presented, i.e. from 1 January 2023. Therefore, the comparatives included in
the interim financial statements are those from the Annual Report and Accounts
of Pollen Street Limited as at and for the year ended 31 December 2023.
Further information on the Reorganisation is provided in Note 1 to the
Financial Statements.
These interim financial statements include all of the information required in
accordance with IAS 34 Interim Financial Reporting. Selected explanatory notes
are included to explain events and transactions that are significant to an
understanding of the changes in the Group's financial position and performance
since the end of 2023. These interim financial statements have not been
audited or reviewed by the Group's auditors.
Key Figures
• Profit for the period - £23.6 million (H1 2023: £17.5 million)
• Assets under management ("AuM")(( 1 (#_ftn1) )) - £4.5 billion
(31 December 2023: £4.2 billion)
• Total income - £54.3 million (H1 2023: £48.7 million)
• EBITDA(( 2 (#_ftn2) )) - £23.8 million (H1 2023: £20.6
million)
• Average-Fee-Paying AuM - £3.4 billion (H1 2023: £2.5 billion)
• Operating profit - £24.1 million (H1 2023: £19.4 million)
• Dividend declared - £16.5 million (H1 2023: £15.8 million)
CEO Report
Lindsey McMurray - Chief Executive Officer
In the first half of 2024 we have continued to build on our strong progress
during 2023 with our fundraising on track and driving growth in Total Assets
under Management ("AuM") and ongoing capital deployment supporting our
Fee-Paying Assets under Management ("Fee Paying AuM"). With recent commitments
to Private Equity Fund V and Private Credit Fund IV, our balance sheet
continues to enable us to build third-party AuM.
Our AuM increased to £4.5 billion as at 30 June 2024 (31 December 2023: £4.2
billion), and with a further close in July 2024 of Private Equity Fund V
together with a co-invest fund brings AuM to £4.8 billion as at 31 July 2024.
Fundraising and Deployment: Strategic Capital Allocation
We have had continued success in our fundraising activities with a notable
increase in the Private Credit funds, which raised c.£0.6 billion within the
first half of the year. The first close of Private Credit Fund IV received
investor commitments of c.£300 million, of which £70 million was from the
Investment Company. This was further supported by the closing of an separately
managed account ("SMA"), with a UK local Pension Fund of £280 million.
Fundraising for Private Credit Fund IV towards our £1 billion target, will
continue through 2025.
Private Equity Fund V progresses well and with advanced discussions with
investors we anticipate meeting our €1 billion target by the end of the
year.
Funds raised have been deployed in a number of high-quality investments,
positioning us well for continued top-tier performance.
Private Equity Strategy: Strategic growth investments
Our Private Equity strategy aligns with industry megatrends: digital
transformation, financial services unbundling, high standards of regulation,
and the green transition. We partner with top management teams to build
next-generation leaders. Our thematic origination identifies fast-growing,
technology-enabled businesses with strong foundations. We focus on creating
customer-centric, data-driven organisations poised to become market leaders,
driving technological advancement, international and product development,
buy-and-build strategies, and ESG initiatives.
Credit Strategy: Controlled risk
Our credit strategy provides asset-based lending facilities to non-bank
lenders, leasing businesses, technology companies, and other firms with
diverse portfolios generating contractual cash flows. We leverage our team's
extensive experience to selectively invest in SME loans, mid-market
residential family homes, government-backed receivables, and electric-vehicle
fleet financings, delivering superior returns with controlled risk,
significant credit protection, achieved through both asset security and
transaction structuring.
Investment Company: Financial resilience and growth
Our balance sheet delivers consistently strong performance with investments
across our strategies but predominantly focussed on our credit strategy. We
made a £70 million commitment to Private Credit Fund IV in March and £22
million to Private Equity Fund V in July, to take the total commitment to £42
million in Private Equity Fund V. In June we refinanced the term debt which
extended the maturity to 2028, providing capacity for the balance sheet
transition to funds and reducing the overall cost of capital. Further,
strategic use of balance sheet capital under our Capital Allocation Framework,
with £10.3 million allocated for buybacks in the first half of the year, has
driven earnings per share.
Sector outlook: Continued growth
Our firm is strategically positioned to capitalise on the growing allocation
to Private Equity and Private Credit. The alternative asset management sector
is experiencing a growth trajectory, with alternatives generating over half of
global AuM revenue but constituting less than a quarter of total AuM(( 3
(#_ftn3) )). This trend underscores the increasing allocations to high return
alternative investments. By 2028, specifically, private equity and private
debt are projected to contribute approximately 70% of the total revenue from
alternatives, attributed to the high-margin nature of these products. Our
expertise and established track record in these areas position us favourably
to seize market opportunities and deliver superior value to our clients.
ESG: Responsible investing for positive impact
We are committed to investing responsibly, aiming to deliver positive outcomes
for our investors, people, industry and society. Sustainability and long-term
thinking are key elements to our investment strategy. We are proud of
embedding our proprietary ESG scoring system with our Private Credit borrowers
with nine ESG ratchets to incentivise achieving ESG goals now implemented
across our portfolio. In July, we released our ESG report for 2023, reflecting
on the progress we have made towards our targets and sharing more detail of
how we work with portfolio companies to:
• reach carbon neutrality;
• set diversity and inclusion targets; and
• promote the strongest possible governance standards.
Read more in our 2023 ESG Report, which is available on our website:
https://www.pollenstreetgroup.com/responsible-investing/esg-reports/
(https://www.pollenstreetgroup.com/responsible-investing/esg-reports/)
We believe ESG is crucial for building more sustainable businesses. Our ESG
scoring helps identify risks and opportunities early, enabling informed
decisions and investment in fair and transparent businesses that have the
foundations to grow sustainably. This strategy allows us to make improvements
and capitalise on opportunities, ultimately delivering great returns and
building great businesses.
CFO Appointment
We were pleased to announce the appointment of Lucy Tilley as our new CFO.
Lucy joined the team in June and her extensive experience and financial
expertise will be invaluable as we build Pollen Street for the long term. We
would also like to extend our gratitude to Julian Dale for his dedicated
service and significant contributions to our success to date and wish him
well.
Road Ahead: Sustained value creation
As we enter the second half of 2024, we remain confident in our strategic
direction and our ability to deliver sustained value to clients and
shareholders. Our strong financial performance, successful fundraising, and
strategic fund deployment position us for continued growth despite the very
competitive fundraising environment.
Strategic Priorities:
• Fundraise for Private Credit Fund IV and Private Equity Fund V;
• Deploy funds raised in H1 2024 within Private Credit;
• Achieve £4.0 billion of Fee-Paying AUM by the end of 2024; and
• Evaluate share buybacks within the capital allocation framework.
I would like to thank our fund investors and shareholders for their support;
our team for all their hard work in achieving this strong start to the year;
and the Board for its guidance. As I look forward to the rest of 2024, I am
confident in our potential for continued growth and consistent delivery for
our investors and shareholders.
Lindsey McMurray
Chief Executive Officer
3 September 2024
CFO Report
Lucy Tilley - Chief Financial Officer
I am pleased to present Pollen Street's Interim Financial Report for the six
months ended 30 June 2024. It has been a successful period, with strong growth
in our financial performance and good progress towards our 2024 targets.
We completed the first close of Private Credit Fund IV in March, with further
closes expected throughout the second half of the year with the target to
raise £1 billion in total commitments. We are pleased with the strong support
of existing investors from Private Credit Fund III continuing their investment
into Private Credit Fund IV, demonstrating strong support for our strategy
from our Limited Partner ("LP") base. We also closed a sizeable SMA from a UK
public pension plan in February with a subsequent upsize in April. Deployment
of the new funds has started well with the business having a large pipeline of
attractive new deals, many of which are expected to complete in the second
half of the year.
Private Equity Fund V has been our core focus for fundraising in Private
Equity, as we continue to develop new relationships with investors and deepen
existing ones, and we expect to complete the fundraising of Private Equity
Fund V by year end.
Total AuM increased to £4.5 billion as at 30 June 2024 (31 December 2023:
£4.2 billion). In addition to the activity in the first half of 2024, the
July 2024 close of Private Equity Fund V and a co-invest fund brings AuM to
£4.8 billion as at 31 July 2024. We are pleased with the strong support from
new and existing investors in both Private Equity and Private Credit. We
remain confident in delivering total commitments in line with our targets.
On 24 January 2024, Pollen Street Group Limited (the "Company") became the
immediate and ultimate parent of Pollen Street Limited (previously Pollen
Street plc) by way of a scheme of arrangement pursuant to Part 26 of the UK
Companies Act 2006. On 14 February 2024, Pollen Street Limited distributed the
entire issued share capital of Pollen Street Capital Holdings Limited to the
Company, this is referred to as the "Distribution". The Scheme and the
Distribution are together referred to as the "Reorganisation". The
Reorganisation is a capital reorganisation and has been accounted for using
the book-value method. This method applies retrospectively, meaning that the
interim financial statements are restated as if the Reorganisation had
occurred at the beginning of the earliest period presented, i.e. from 1
January 2023. Further information on the Reorganisation is provided in Note 1
to the Financial Statements.
The operating profit for the Group increased by 24 per cent to £24.1 million
for H1 2024 (H1 2023: £19.4 million). The main driver of this material
increase was the 45 per cent increase in the operating profit of the Asset
Manager segment to £8.4 million (H1 2023: £5.8 million) and a slight
increase in operating profit of the Investment Company which was strong
performance given the balance sheet rotation to funds.
The Investment Asset portfolio delivered another period of strong and stable
performance with Income on Net Investment Assets of £15.8 million (H1 2023:
£15.4 million). In particular the portfolio generated a strong level of cash
of £170.3 million (H1 2023: £135.4 million), driven by a high level of
realisations demonstrating the quality of the assets especially in the current
environment where other credit strategies are typically exhibiting lower
liquidity.
New investments from the Investment Company have been aligned to the
fundraising of Pollen Street managed funds with £163 million currently
committed to Pollen Street managed funds. These commitments are typically
drawn over several years and therefore with the strong cash generation in the
period the overall Investment Asset portfolio reduced in size versus the year
end and the net debt-to-tangible-equity ratio reduced to 28 per cent (31
December 2023: 54 per cent).
Asset Manager growth
Assets under management are tracked on a total AuM and fee-paying basis. Total
AuM tracks the commitments that investors have made into funds managed by the
Asset Manager, whereas the Average Fee-Paying AuM tracks the basis on which
the Group earns management fees, with the average calculated from the opening
and closing positions. For Private Equity, the Fee-Paying AuM is the committed
capital in the funds, moving to invested capital at the earlier of five years
from first close or when the subsequent flagship fund holds its first close.
Co-investment vehicles are typically non-fee paying. Fee-Paying AuM for
Private Credit is the net invested amount. Total AuM was £4.5 billion as at
30 June 2024 (31 December 2023: £4.2 billion), increasing to £4.8 billion at
31 July 2024 with a further step-up in AuM expected in the second half of 2024
as fund raising for Private Equity Fund V and Private Credit Fund IV
continues.
Total AuM H1 2024 31-Dec-23 H1 2023
(£ billion) (£ billion) (£ billion)
Private Equity 2.7 2.6 1.8
Credit 1.8 1.6 1.6
Total 4.5 4.2 3.4
Average Fee-Paying AuM H1 2024 H1 2023
(£ billion) (£ billion)
Private Equity 2.1 1.1
Credit 1.3 1.4
Total 3.4 2.5
Fundraising has increased Private Equity Average Fee-Paying AUM to £2.1
billion (H1 2023: £1.1 billion), with Average Fee-Paying AUM for the Credit
strategy at £1.3 billion for H1 2024 (H1 2023: £1.4 billion) with the
reduction driven by the Investment Company asset portfolio. We expect Average
Fee-Paying AUM for the Credit strategy to increase as the newly raised funds
are deployed in H2 2024 and convert into fee-paying AuM. Combined, this
represents a growth rate of 36 per cent in Average Fee-Paying AUM. Since the
period end, Private Equity Average Fee-Paying AuM has stepped up with the
additional closing of Private Equity Fund V.
Asset Manager Profitability H1 2024 H1 2023
(£ million) (£ million)
Total Income 26.8 21.7
Administration Costs (18.4) (15.9)
Operating Profit 8.4 5.8
Depreciation of lease asset (0.4) (0.6)
Fund Management EBITDA 8.0 5.2
Fund Management Income comprises management fees, performance fees and income
from carried interest. Revenue growth has been driven by increases in the
Group's Average Fee-Paying AuM and income from carried interest. Total Income
increased by 23 per cent to £26.8 million for H1 2024 (H1 2023: £21.7
million). Fund Management Administration Costs increased at a lower rate of 16
per cent to £18.4 million for H1 2024 (H1 2023: £15.9 million). This
moderate increase in costs has been driven predominantly by promotions and pay
rises within the team, with a slight increase in headcount.
In the Asset Manager segment Operating Profit increased by 45 per cent to
£8.4 million (H1 2023: £5.8 million). The Group tracks the performance of
this segment using Fund Management EBITDA, which is the Operating Profit less
the accounting cost of the office lease(( 4 (#_ftn4) )), which was a £0.4
million charge for H1 2024 (H1 2023: £0.6 million). Fund Management EBITDA
has grown by 54 per cent to £8.0 million (H1 2023: £5.2 million), reflecting
the inherent operational leverage in the Asset Manager.
Asset Manager Financial Ratios H1 2024 H1 2023
Management Fee Rate 1.26% 1.30%
(% of Average Fee-Paying AuM)
Performance Fee Rate 21% 25%
(% of Fund Management Income)
Fund Management EBITDA Margin 30% 24%
(% of Fund Management Income)
In general, Private Equity funds charge fees on committed capital. Investors
who join these funds after the first investors' admission date are charged
catch-up fees, so all investors pay fees from the date of the first close. In
general, Private Credit funds charge fees on net invested capital. Capital is
generally recycled until the end of the investment period. Management fee
rates remain the same for the duration of the funds. We have guided to a
long-term management fee rate of between 1.25 per cent and 1.5 per cent. This
depends on the revenue mix including the relative size of Private Equity
compared to Private Credit. The Management Fee Rate for H1 2024 was 1.26 per
cent (H1 2023: 1.30 per cent).
In addition to management fees, the Group earns performance fees and carried
interest. These fees allow the Group to share in the profits of the funds
under management subject to meeting certain hurdles. The Group earns 25 per
cent of the carried interest in the most recent vintage of all flagship funds
and all future funds. For the Private Equity strategy, this includes Private
Equity Funds IV and V. Carried interest is generally 20 per cent of the
Private Equity fund returns over a hurdle of 8 per cent per annum with full
catch-up. For the Private Credit strategy, carry is earned on Private Credit
Funds III and IV and certain SMAs. Carried interest for the Private Credit
funds is generally 10 per cent of returns with a 5 to 6 per cent hurdle and
full catch-up. Performance fees and carried interest for H1 2024 were 21 per
cent of Fund Management Income for the period (H1 2023: 25 per cent). This is
in the middle of the range of the long-term guidance of 15 per cent to 25 per
cent and reflects stable performance fee and carry valuation growth despite
turbulent markets.
The Fund Management EBITDA Margin increased to 30 per cent for H1 2024 (H1
2023: 24 per cent). We expect Fund Management EBITDA margin to continue to
grow as the Group increases its revenue by raising additional funds under the
Private Equity and Private Credit strategies. We are targeting a Fund
Management EBITDA Margin above 50 per cent in the long-term.
Investment Company performance
Investment Company Segment H1 2024 H1 2023
Investment Assets £430 million £561 million
Average Net Investment Assets £329 million £343 million
Income on Net Investment Assets £15.8 million £15.4 million
Return on Net Investment Assets 9.7% 9.1%
The Investment Company delivered strong returns in the period with return on
net investment assets increasing to 9.7 per cent and Income on Net Investment
Assets of £15.8 million. This performance was driven by robust performance in
the underlying portfolio with strong levels of risk adjusted income. In
particular the portfolio has seen high levels of cash generation in the first
half of the year of £170.3 million (H1 2023: £135.4 million) driven by a
high level of realisations. This cash generation demonstrates the quality of
the portfolio and will facilitate the rotation of the portfolio to focus on
investing in Pollen Street managed funds from direct investments.
As at 30 June 2024, the investment portfolio was £430 million and well
diversified across deals and borrowers with the largest investment accounting
for 17 per cent of the portfolio. The portfolio is 91 per cent invested in
Credit Assets (either in direct deals or through Pollen Street managed funds)
and 9 per cent invested in Private Equity Assets (either in direct deals or
through Pollen Street managed funds).
We have made good progress with the rotation of the investment portfolio to
support fundraising with £163 million committed to Pollen Street managed
funds. These commitments were £67 million drawn as at 30 June 2024 and are
expected to continue to draw over the investment period of the funds. The
phased drawdown of fund commitments combined with the high cash realisations
in the period has led to a reduction in the size of the overall asset
portfolio and a corresponding reduction in the debt position of the group to
with a reduction in the debt-to-tangible-equity ratio from 59 per cent to 37
per cent.
We completed a new 4 year £200 million senior debt facility on 10 June 2024
refinancing the previous facility and achieving a lower margin. The benefits
of lower interest expense will be realised in H2 2024 and beyond. As at 30
June 2024, this facility was drawn £85.0 million and alongside the asset
specific non recourse SPV facilities the total leverage for the Group was
£129.8 million (31 December 2023: £210.8 million). In addition the Group had
£29.7 million (31 December 2023: £19.7 million) of cash resulting in a
strong liquidity position and a net debt-to-tangible equity ratio of 28 per
cent (31 December 2023: 54 per cent).
Profit before tax and tax
Profit before tax for the Group increased by 26 per cent to £23.2 million for
H1 2024 (H1 2023: £18.4 million). The main drivers of this are the increase
of £2.6 million in the operating profit from the Asset Manager segment and a
slight increase in operating profit of the Investment Company.
The charge for depreciation and amortisation is £0.9 million (H1 2023: £1.0
million). This relates to a charge of £0.2 million (H1 2023: £0.1 million)
associated with the depreciation of the Group's fixed assets, a charge of
£0.4 million (H1 2023: £0.6 million) associated with the depreciation of the
Group's leased assets, in addition to a charge of £0.3 million (H1 2023:
£0.3 million) associated with the amortisation of intangible assets
representing the value of customer relationships.
As a result of the Reorganisation, the Group now incurs corporation tax on all
of its activities as the Investment Company is no longer an investment trust.
The current tax charge for the period was £1.4 million (H1 2023: £0.7
million), benefitting from unused tax losses arising from previously incurred
management expenses in the Investment Company following the Reorganisation.
The Group is now also able to recognise a deferred tax asset in respect of the
balance of these unused tax losses. The origination of the deferred tax asset
in the current period has resulted in an overall deferred tax credit for the
period of £1.8 million (H1 2023: £0.2 million charge). The deferred tax
asset of £2.8 million as at 30 June 2024 in respect of previously incurred
management expenses is expected to reverse out by the year end.
H1 2024 H1 2023
(£ million) (£ million)
Operating profit of Asset Manager 8.4 5.8
Operating profit of Investment Company 15.8 15.4
Operating loss of Central segment (0.1) (1.8)
Operating profit of Group 24.1 19.4
Depreciation and amortisation (0.9) (1.0)
Profit before tax 23.2 18.4
Corporation tax 0.4 (0.9)
Profit after tax 23.6 17.5
Earnings per share and dividend
Earnings per share (basic and diluted) increased by 36 per cent to 36.9 pence
per share (H1 2023: 27.2 pence per share). 2024 is the first year in which
Pollen Street will be issuing dividends semi-annually, with the Q4 2023
dividend, paid in March 2024, being the last quarterly dividend.
The Board is pleased to confirm an interim dividend for the period ending 30
June 2024 of 26.5 pence per share reflecting the Group's guidance that the
Group will pay a dividend of no lower than £33 million in respect of 2024 and
that the Group will grow dividends progressively thereafter. This represents a
cash outlay of £16.5 million. In H1 2023, two quarterly dividends of 16.0
pence per share were declared, representing a cash outlay of £15.8 million.
The record date for the interim dividend will be 13 September 2024 and the
payment date 11 October 2024. The ex-dividend date will be 12 September 2024.
Following the Reorganisation, dividends will be payable half yearly, with the
final dividend for the year being paid after approval by Shareholders at the
AGM.
Outlook
The Group remains in a strong position for growth in H2 2024 and beyond. Fund
Management Income is expected to continue to grow with the final close of
Private Equity Fund V anticipated to be at its target of €1 billion, and
further capital raises in Private Credit Fund IV and their subsequent
deployment under the Credit strategies. The balance sheet has strong downside
protection from credit risk, with a high-quality portfolio of assets, and has
shown robust performance in H1 2024. The Group is trading in line with
expectations.
Lucy Tilley
Chief Financial Officer
3 September 2024
Environmental, Social and Governance ("ESG")
Pull out quote:
"We are committed to operating and investing responsibly, constantly
maintaining and improving our approach to make sure we focus on actions that
generate positive impact for our investors, people, portfolio and wider
society."
Our approach to ESG
At Pollen Street, we have a proud history of thinking, behaving and investing
responsibly. We believe in the potential for positive impact through the work
that we are passionate about. We are committed to maintaining and enhancing
our focus on actions that generate positive impact for our investors, people,
portfolio and wider society.
In the first half of 2024, Pollen Street has continued to make progress,
helping portfolio companies and borrowers to achieve their sustainability
goals. This has been achieved through the spotlight on data and scoring,
cross-portfolio collaboration, and effective monitoring and measurement
through KPIs and ESG ratchets. With the evolving regulatory landscape, we have
also been working to strengthen our approach to reporting and climate risk
management with a focus on the evolving regulatory environment.
Highlights in the first half of the year include:
· Delivering measurable change: 2023 was Pollen Street's third year
of gathering data in our proprietary data model. This allows us to both rank
and score our investments across our Private Equity and Credit portfolios as
well as tracking progress against the previous year. We have continued the
role of ESG ratchets with our Credit borrowers, and we are pleased to announce
that there are now nine ratchets implemented across our portfolio.
· Maintaining carbon neutral and paving the way towards
decarbonisation: Pollen Street is pleased to confirm that we have maintained a
carbon neutral status for the second consecutive year, meeting the goal we set
ourselves in 2020. As part of our collaboration with the Initiative Climate
International, we are further challenging ourselves to deliver against our
decarbonisation roadmap that shows the portfolio's progress against targets.
Currently 100% of our Private Equity portfolio companies are committed to
decarbonisation roadmap and 48% achieved carbon neutral status by the end of
2023.
· Advancing DE&I as an industry role model: Pollen Street
published the results of its fourth annual internal Diversity, Equity &
Inclusion ("DE&I") survey in our 2023 annual report. The findings continue
to demonstrate continued improvement, an increase of state-educated team
members from 66% to 70%. In contrast, for Private Equity as an industry, 70%
of employees are private-school educated (source Sutton Trust).
· Sharing best practice: In the year-end report we built out some
key themes; putting a spotlight on Progressive as a core value, identifying
innovations within portfolio companies, optimising supply chains, and
investing in AI and other technology to drive sustainable growth.
Pollen Street's latest ESG report was published in July
This report highlights our progress against our ESG targets and impact agenda.
It details our carbon and climate roadmap, our approach to diversity, equity,
and inclusion, and our efforts to build better, more sustainable businesses
through robust corporate governance, operational excellence, and inclusive
cultures. The report also showcases examples of impactful actions across
Pollen Street and our Private Equity and Credit portfolio, demonstrating how
our investments drive positive change.
https://www.pollenstreetgroup.com/responsible-investing/esg-reports/
(https://www.pollenstreetgroup.com/responsible-investing/esg-reports/)
Our ESG Strategy
Our ESG strategy is designed to deliver impact for the benefit of all our
stakeholders. We have a clear ambition with initiatives across each of the
Environment, Social and Governance areas. Below we set out our key objectives,
highlights and focus areas under the Environmental, Social and Governance
pillars.
ENVIRONMENT
SOCIAL
GOVERNANCE
AMBITION
Create a lasting environmental impact
Promote DEI and provide finance for socially-impactful products & Regulatory best practice through all operational processes
propositions
inancial Inclusion -
Fund green alternatives for sustainable homes and transport loans and other financial products made available to a broader audience G transparency with clear reporting and communications
Effective AML & cyber procedures and governance
Enable SMEs to promote growth and job creation in Pollen Street's markets
Engagement with portfolio companies on governance, to identify gaps and provide support
Creating opportunities to reduce inequalities - promoting diversity, equity and inclusion
Responsible lending - best practice amongst our credit partners
Minimise operational carbon footprint, supporting carbon reduction plans and net zero commitments
Consider climate risk as part of investment and risk management process
RECENT
Fourth year of carbon measurement
ESG margin ratchet now in place for nine credit facilities driving uplift in ESG scores
HIGHLIGHTS Strengthened community & charity efforts with Future First and Human
Rights
Watch
Introduced Private Markets decarbonisation roadmap to map portfolio DEI initiatives across firm and portfolio - Second year of 10,000 Black Average score improvement of 17% in PE ESG scores
activities Interns
Maintained carbon neutral status for 2023 emissions
Delivered initial TCFD disclosures, engaged third party to support climate
risk framework and roadmap
SHORT-TERM FOCUS
Broaden DEI targets and measures
Continue to enhance oversight and regulatory governance frameworks
Strengthen carbon measurement activities for carbon footprint, including Scope
3 emissions
Collaborate with community partners to deliver impactful change Continue to deliver ESG training and education across the firm and portfolio
Tracking net zero commitments for firm and portfolio
Continued focus on strengthening supply chain sustainability procedures
Continue to invest in sustainable finance propositions
Driving sustainability outcomes
Commitment to positive ESG outcomes is manifested through direct and
measurable goals at both Group and portfolio level. These include:
· Pollen Street maintaining a carbon neutral status for each year
and working with our portfolio companies to be net zero within five years of
investment (for new investments after 2021); and
· Pollen Street is committed to promoting strong governance
throughout the portfolio including the universal inclusion of ESG matters on
all portfolio company board agendas.
To strengthen commitments to ESG and sustainability, we have incorporated
sustainability linked factors, including an ESG margin ratchet mechanism into
our new credit facilities as an incentive to achieve ESG goals. Under this
mechanism, Pollen Street provides margin reductions on facilities, subject to
the counterparty improving their ESG score and achieving performance targets,
such as achieving net zero status, and there is a corresponding margin
increase if their scores do not improve or meet agreed thresholds. As of July
2024, we are pleased to announce we have implemented nine live ESG ratchets
across our Credit portfolio.
Looking ahead
As set out in the ESG report, we continue to strengthen best-practice and
collaboration aligned to our ESG framework, with a focus on improving the
sustainability performance of our investments, as well as addressing and
mitigating risks. Focus areas include improvements to ESG reporting and
consistency considering evolving ESG regulatory considerations, Governance
structures and strengthening approaches to assess and monitor supply chain
sustainability as well as ongoing stewardship and collaboration across the
Private Equity and Credit portfolios.
Alison Collins
Head of ESG
3 September 2024
Risk Management & Principal Risks and Uncertainties
The Directors do not consider there to have been any material changes to the
principal risks and uncertainties since the 2023 Annual Report and Accounts
were published and the Directors expect the principal risks and uncertainties
not to change over the second half of 2024.
Details of the Group's approach to risk management is set out within pages 28
to 32 of the 2023 Annual Report and Accounts, which is available in the
financial information section of the Group's website.
The principal risks within the 2023 Annual Report and Accounts include:
economic & market conditions, fund raising, management fee rates and other
fund terms, on balance sheet investment underperformance, ESG and
sustainability performance, talent and retention, and information security and
resilience.
Statement of Directors' Responsibilities in Respect of the Financial
Statements
The Directors, being the persons responsible, confirm that to the best of
their knowledge:
a) the condensed set of Financial Statements contained within the
Interim Report have been prepared in accordance with UK-adopted IAS 34
'Interim Financial Reporting' and the Disclosure and Transparency Rules
("DTR") sourcebook of the UK's Financial Conduct Authority, and gives a true,
fair, balanced and understandable view of the assets, liabilities, financial
position and comprehensive income of the Group;
b) the Interim Report includes a fair review, as required by
Disclosure and Transparency Rule 4.2.7R, of important events that have
occurred during the first six months of the financial year, their impact on
the condensed set of unaudited Financial Statements, and a description of the
principal risks and perceived uncertainties for the remaining six months of
the financial year; and
c) the Interim Report includes a fair review of the information
concerning related parties' transactions as required by Disclosure and
Transparency Rule 4.2.8R.
Signed on behalf of the Board by:
Robert Sharpe
Chairman
3 September 2024
Condensed Consolidated Statement of Comprehensive Income
Notes For the period ended 30 June 2024 For the period ended 30 June 2023
£'000 £'000
Management fee income 6 18,773 13,188
Carried interest and performance fee income 6, 9 3,814 3,771
Interest income on Credit Assets held at amortised cost 6 24,223 29,089
Gains on Investment Assets held at fair value 6 7,530 2,630
Total income 54,340 48,678
Credit impairment (charge) / release 6, 11 (1,152) 289
Third-party servicing costs 6 (499) (1,070)
Net operating income 52,689 47,897
Administration costs 6 (19,579) (18,309)
Finance costs 6, 10 (9,045) (10,152)
Operating profit 24,065 19,436
Depreciation 6 (555) (680)
Amortisation 5, 6 (320) (320)
Profit before tax 23,190 18,436
Tax credit / (charge) 12 381 (977)
Profit after tax 23,571 17,459
Other comprehensive income
Foreign currency translation reserve (32) (360)
Total comprehensive income 23,539 17,099
Earnings per share 14 36.9 pence 27.2 pence
(basic and diluted)
No operations were discontinued during the period.
The notes to the accounts form an integral part of the financial statements.
Condensed Consolidated Statement of Financial Position
As at 30 June 2024 As at 31 December 2023
Notes £'000 £'000
Non-current assets
Credit Assets at amortised cost 11 327,592 444,490
Investment Assets held at fair value through profit or loss 8 102,605 88,220
Fixed assets 1,102 1,277
Goodwill and intangible assets 5 230,071 230,391
Lease assets 13 3,395 3,817
Carried interest 9 21,146 17,332
Deferred tax asset 12 2,774 -
Total non-current assets 688,685 785,527
Current assets
Cash and cash equivalents 29,726 19,746
Receivables 15 25,116 17,942
Derivative assets held at fair value through profit or loss 18 65 -
Total current assets 54,907 37,688
Total assets 743,592 823,215
Current liabilities
Payables 16 18,688 19,149
Lease payables 13 1,444 1,444
Current tax payable 2,385 981
Deferred tax liability 12 3,615 2,628
Derivative liabilities held at fair value through profit or loss 18 - 179
Interest-bearing borrowings 10 39,927 132,738
Total current liabilities 66,059 157,119
Total assets less current liabilities 677,533 666,096
Non-current liabilities
Lease payables 13 2,123 2,708
Interest-bearing borrowings 10 89,871 78,026
Total non-current liabilities 91,994 80,734
Net assets 585,539 585,362
Shareholders' funds
Ordinary share capital 19 627 642
Share premium 562,412 -
Retained earnings 20 22,801 8,094
Foreign Currency Translation Reserve 20 (301) (269)
Other reserves - 576,895
Total shareholders' funds 585,539 585,362
The notes to the accounts form an integral part of the financial statements.
Condensed Consolidated Statement of Changes in Shareholders' Funds
For the period ended 30 June 2024
Ordinary Share Retained Earnings Special Distributable Reserve Merger Reserves Foreign Currency Translation Reserve Total
Share
Premium
Equity
Capital
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds as at 642 - 8,094 351,625 225,270 (269) 585,362
1 January 2024
Reallocation of reserves - 576,895 - (351,625) (225,270) - -
Profit after taxation - - 23,571 - - - 23,571
Reclassification of transaction costs - 517 (517) - - - -
Transaction costs in relation to the Scheme - (4,699) - - - - (4,699)
Dividend paid - - (8,347) - - - (8,347)
Buybacks (15) (10,301) - - - - (10,316)
Foreign currency translation reserve - - - - - (32) (32)
Shareholders' funds as at 627 562,412 22,801 - - (301) 585,539
30 June 2024
For the year ended 31 December 2023
Ordinary Share Retained Earnings Special Distributable Reserves Merger Reserves Foreign Currency Translation Reserve Total equity
Share
Premium
Capital
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds as at 689 299,599 2 51,979 225,270 - 577,539
1 January 2023
Profit after taxation - - 39,940 - - - 39,940
Foreign currency translation reserve - - - - - (453) (453)
Dividends paid in the year - - (31,664) - - - (31,664)
Cancellation of treasury shares (47) 47 - -
Cancellation of share premium reserve - (299,646) - 299,646 -
Reallocation of reserves - - (184) 184 -
Shareholders' funds as at 642 - 8,094 351,625 225,270 (269) 585,362
31 December 2023
The notes to the accounts form an integral part of the financial statements.
Condensed Consolidated Statement of Cash Flows
For the period ended For the period ended
30 June 2024
30 June 2023
Notes £'000 £'000
Cash flows from operating activities:
Profit after taxation 23,571 17,459
Adjustments for:
Repayments of Investments at amortised cost 115,748 41,400
Charge / (release) in expected credit loss 11 1,152 (289)
Purchase of Investments at fair value 8 (9,860) (24,325)
Receipt of Investments at fair value 8 2,702 10,009
Net change in unrealised gains 8 (7,501) (1,527)
Finance costs 10 9,045 10,152
Foreign exchange revaluation 224 2,290
Corporation tax 12 (381) (242)
Gains in carried interest 9 (3,814) (3,778)
Depreciation of fixed assets 135 153
Depreciation of lease assets 13 422 545
Amortisation of intangible assets 5 320 320
(Increase) / decrease in receivables (7,066) 1,820
Increase / (decrease) in payables (572) (4,443)
Increase / (decrease) in derivatives (244) (1,733)
Net cash inflow from operating activities 123,881 47,811
Cash flows from investing activities:
Purchase of fixed assets - (117)
Net cash (outflow) / inflow from investing activities - (117)
Cash flows from financing activities:
Payments of lease liabilities (652) (652)
Redemption of shares (10,301) -
Reorganisation transaction costs (4,589) -
Transaction costs for financing activities 10 (2,500) -
Drawdown of interest-bearing borrowings 10 97,000 17,000
Repayments of interest-bearing borrowings 10 (175,829) (45,271)
Interest paid on financing activities 10 (8,588) (9,178)
Dividends paid in period 17 (8,347) (15,832)
Net cash (outflow) from financing activities (113,806) (53,933)
Net change in cash and cash equivalents 10,075 (6,239)
Cash and cash equivalents at the beginning of the period 19,746 23,303
Foreign exchange gains and losses (95) (360)
Cash and cash equivalents at the end of the period 29,726 16,704
The notes to the accounts form an integral part of the financial statements.
Notes to the Financial Statements
1. General Information
Pollen Street Group Limited (previously "Harry Newco Limited") was
incorporated and registered under the laws of Guernsey and is domiciled in
Guernsey with registration number 70165. Pollen Street Group Limited is
referred to as the "Company" or "Pollen Street", and together with its
subsidiaries, the 'Group'. The registered office of the Company is: Mont
Crevelt House, Bulwer Avenue, St. Sampson, Guernsey, GY2 4LH. The principal
place of business of the Company is 11-12 Hanover Square, London, W1S 1JJ.
The Company was established on 24 December 2021. The Company's purpose was to
become the parent company of Pollen Street Limited ("PSL"), previously Pollen
Street plc, by way of a scheme of arrangement (the "Scheme"). The Company's
activities until the Scheme came into effect were compliance related. The
scheme of arrangement came into effect on 24 January 2024.
On 24 January 2024, the Company became the immediate and ultimate parent of
Pollen Street Limited by way of a scheme of arrangement pursuant to Part 26 of
the UK Companies Act 2006. As part of this, the shares of Pollen Street
Limited were delisted and cancelled and new shares were issued to the Company
so that the Company holds 100 per cent of the issued shares in Pollen Street
Limited. New shares in the Company were also issued to the former shareholders
of Pollen Street Limited on a one-to-one basis and were admitted to trading on
the London Stock Exchange's ("LSE") main market for listed securities and to
the premium listing segment for commercial companies of the Official List
maintained by the Financial Conduct Authority in accordance with Part VI of
the Financial Services and Markets Act 2000.
On 14 February 2024, Pollen Street Limited distributed the entire issued share
capital of Pollen Street Capital Holdings Limited ("PSCHL") to the Company
referred to as the Distribution. The Scheme and the Distribution are together
referred to as the "Reorganisation".
The principal activities of the Company are to be the holding company for two
100 per cent owned subsidiaries, and the principal activity of the Group is to
act as an alternative asset manager investing within the financial and
business services sectors across both Private Equity and Private Credit
strategies.
2. Principal Accounting Policies
Basis of preparation
These condensed consolidated interim financial statements ('interim financial
statements') for the six months ended 30 June 2024 have been prepared on the
basis of the policies set out in the 2023 annual financial statements. They
have also been prepared in accordance with UK-adopted International Accounting
Standards, including IAS 34 'Interim Financial Reporting', with the
requirements of The Companies (Guernsey) Law, and the Disclosure Guidance and
Transparency Rules sourcebook of the UK's Financial Conduct Authority ("FCA").
The interim financial statements do not include all of the information
required for a complete set of financial statements prepared in accordance
with IFRS Accounting Standards. However, selected explanatory notes are
included to explain events and transactions that are significant to an
understanding of the changes in the Group's financial position and performance
since the end of 2023.
The Reorganisation is a capital reorganisation and has been accounted for
using the book-value method. This method applies retrospectively, meaning that
the interim financial statements are restated as if the Reorganisation had
occurred at the beginning of the earliest period presented, i.e. from 1
January 2023. Therefore, the comparatives included in the interim financial
statements are those from the Annual Report and Accounts of Pollen Street
Limited as at and for the year ended 31 December 2023.
These interim financial statements have not been audited or reviewed by the
Group's auditors.
Going concern
The Directors have reviewed the financial projections of the Group, which show
that the Group will be able to generate sufficient cash flows in order to meet
its liabilities as they fall due within 12 months from the approval of these
interim financial statements. These financial projections have been performed
for the Group under stressed scenarios, and in all cases the Group is able to
meet its liabilities as they fall due. For the Investment Company, the
stressed scenarios included halting future Investment Asset originations, late
repayments of the largest structured facility and individual exposures
experiences ongoing performance at the worst monthly impact experienced
throughout 2023 and the first half of 2024. For the Asset Manager, the
stressed scenarios included no new funds being raised.
The Directors consider these scenarios to be the most relevant risks to the
Group's operations. Finally, the Directors reviewed financial and
non-financial covenants in place for all debt facilities within the
subsidiaries of the Group with no breaches anticipated, even in the stressed
scenario. The Directors are satisfied that the going concern basis remains
appropriate for the preparation of the financial statements.
The principal accounting policies adopted by the Company are set out below and
all values are in pounds.
Accounting policies
All of the applicable accounting policies are shown below. Following the
Reorganisation on 24 January 2024, the Group introduced or updated the
following accounting policies:
Consolidation
Subsidiaries are investees controlled by the Company. The Company controls an
investee if it is exposed to, or has the rights to, variable returns from its
involvement with the investee and has the ability to affect those returns
through its power over the investee. The Company reassesses whether it has
control if there are changes to one or more elements of control. The Company
does not consider itself to be an investment entity for the purposes of IFRS
10, as it does not hold substantially all of its investments at fair value.
Consequently, it consolidates its subsidiaries rather than holding at fair
value through profit or loss.
The Group also assessed the consolidation requirements for the carried
interest partnerships and certain underlying entities or Pollen Street managed
funds ("funds") which the Group holds as investments as explained in the
investments in associates section.
In the consolidated financial statements, intra-group balances and
transactions, and any unrealised income and expenses arising from intra-group
transactions, are eliminated. All entities within the Group have coterminous
reporting dates.
Capital reorganisation
Capital reorganisations are accounted for using the book-value method. This
methodology is used as these transactions do not represent a substantive
change in ownership. Instead, they are viewed as a reorganisation of entities
within the same group. The Directors consider this method to be the most
accurate reflection of the historical financial performance and position of
the combining entities following the Reorganisation.
This method applies retrospectively, meaning that the interim financial
statements are restated as if the Reorganisation had occurred at the beginning
of the earliest period presented. The assets and liabilities of the combining
entities are recognised at their carrying amounts in the interim financial
statements. No adjustments are made to reflect fair values or recognise any
new assets or liabilities, except where necessary to align accounting
policies.
Any consideration transferred is recognised at its carrying amount. The
difference between the consideration transferred and the carrying amount of
the net assets acquired is recognised in equity.
Comparative information is restated to reflect the reorganisation as if it had
occurred at the beginning of the earliest period presented. This ensures
consistency and comparability of financial information across periods.
Refer to Note 4 for further details.
Investments in subsidiaries
Investments in subsidiaries in the Statement of Financial Position of the
Company are recorded at cost less provision for impairments. All transactions
between the Company and its subsidiary undertakings are classified as related
party transactions for the Company accounts and are eliminated on
consolidation.
Investments in associates
Associates are entities over which the Group has significant influence, but
does not control, generally accompanied by a shareholding of between 20 per
cent and 50 per cent of the voting rights.
Before the acquisition of Pollen Street Limited by the Company, Pollen Street
Limited acquired carried interest rights in two Private Equity funds as part
of the Combination on 30 September 2022. The rights are in the form of
partnership participations in carried interest partnerships. The Group has 25
per cent of the total interests in these partnerships. The Group has in excess
of 20 per cent participation and therefore is considered to have significant
influence over the partnerships and the partnerships are considered to be an
associate.
The Directors also consider any influence that the Group has in the set up of
any new carried interest partnerships in order to assess the power to control
them. The Group has between 1 per cent and 25 per cent of the total interests
in these partnerships. It was determined that the carried interest
partnerships were set up on behalf of the fund investors, and that on balance,
the Group does not control the carried interest partnerships. Where the Group
has in excess of 20 per cent of LP interest in the carried interest
partnership, the Group is considered to have significant influence. It was
therefore determined that these carried interest partnerships are also
accounted for as associates.
These carried interest partnerships (including associates and contract assets)
are presented in the 'Carried interest' line on the Consolidated Statement of
Financial Position; and income from the carried interest partnerships is
presented in the 'Carried interest and performance fee income' line on the
Consolidated Statement of Comprehensive Income.
The key judgemental areas for the accounting of carried interest partnerships
are set out in Note 3, Significant accounting estimates and judgements.
For the underlying entities or funds, the Directors consider the nature of the
relationships between the Group, the underlying entities or funds and the
investors. The Directors also consider any influence that the Group has in the
set up of the underlying entities or funds in order to assess the power to
control the underlying entities or funds. It was determined that the
underlying entities or funds were set up for the investors, and that on
balance, the Group does not control the underlying entities or funds.
The Group also holds more than 20 per cent of interest in certain underlying
entities or funds. The Group elects to hold these investments in associates at
Fair Value Through Profit or Loss ("FVTPL"). This treatment is permitted by
IAS 28 Investments in Associates and Joint Ventures, which permits investments
held by entities that are venture capital organisations, mutual funds or
similar entities to be excluded from its measurement methodology requirements
where those investments are designated, upon initial recognition, as at FVTPL
and accounted for in accordance with IFRS 9. These underlying entities or
funds are presented in the 'Investment assets held at fair value through
profit or loss' line on the Consolidated Statement of Financial Position.
Changes in fair value of these entities or funds are presented in the 'Gains
on Investment Assets held at fair value' on the Consolidated Statement of
Comprehensive Income.
Business model assessment
The Group assesses the objective of the business model in which a financial
asset is held at a portfolio level in order to generate cash flows because
this best reflects the way the business is managed. That is, whether the
Group's objective is solely to collect the contractual cash flows from the
assets or is to collect both the contractual cash flows and cash flows arising
from the sale of assets. If neither of these are applicable, then the
financial assets are classified as part of the other business model and
measured at FVTPL.
The assessment includes:
· the stated policies and objectives for the portfolio and the
operation of those policies in practice, including whether the strategy
focuses on earning contractual interest revenue, maintaining a particular
interest rate profile, matching duration of the financial assets to the
duration of the liabilities that are funding those assets or realising cash
flows through the sale of assets;
· past experience on how the cash flows for these assets were
collected;
· how the performance of the portfolio is evaluated and reported;
· the risks that affect the performance of the business model (and
the financial assets held within that business model) and how those risks are
managed; and
· the frequency, volume and timing of deployment in prior years,
the reasons for such deployment and expectations about future deployment
activity. However, information about deployment activity is not considered in
isolation, but as part of an overall assessment of how the stated objective
for managing the financial assets is achieved and how cashflows are realised.
Assessment of whether contractual cash flows are solely payments of principal
and interest
For the purposes of this assessment, "principal" is defined as the fair value
of the financial asset on initial recognition. "Interest" is defined as
consideration for the time value of money, for the credit risk associated with
the principal amount outstanding during a particular period of time and for
other basic lending risks and costs (e.g. liquidity risk and administrative
costs), as well as a reasonable profit margin.
In assessing whether the contractual cash flows are solely payments of
principal and interest, the contractual terms of the instrument are
considered. This includes assessing whether the financial asset contains a
contractual term that could change the timing or amount of contractual cash
flows such that it would not meet this condition. In making the assessment the
following features are considered:
· contingent events that would change the amount and timing of cash
flows;
· leverage features;
· prepayment and extension terms;
· terms that limit the Group's claim to cash flows from specified
assets, e.g. non-recourse asset arrangements; and
· features that modify consideration for the time value of money,
e.g. periodic reset of interest rates.
Classification and measurement
Financial assets and financial liabilities are recognised in the Consolidated
Statement of Financial Position when the Group becomes a party to the
contractual provisions of the instrument. The Group shall offset financial
assets and financial liabilities if it has a legally enforceable right to set
off the recognised amounts and interests and intends to settle on a net basis.
Financial assets and liabilities are derecognised when the Group settles its
obligations relating to the instrument.
Classification and measurement - Financial assets
IFRS 9 contains a classification and measurement approach for debt instruments
that reflects the business model in which assets are managed and their cash
flow characteristics. This is a principle-based approach and applies one
classification approach for all types of debt instruments. For debt
instruments, two criteria are used to determine how financial assets are
classified and measured:
· the entity's business model (i.e. how an entity manages its debt
Instruments in order to generate cash flows by collecting contractual cash
flows, selling financial assets or both); and
· the contractual cash flow characteristics of the financial asset
(i.e. whether the contractual cash flows are solely payments of principal and
interest).
A debt instrument is measured at amortised cost if it meets both of the
following conditions and is not designated as at FVTPL:
(a) it is held within a business model whose objective is to hold assets to
collect contractual cash flows; and
(b) its contractual terms give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
IFRS 9 details the classification and measurement approach for assets measured
at fair value through other comprehensive income ("FVOCI") if it meets both of
the following conditions and is not designated as at FVTPL:
(a) it is held within a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets; and
(b) its contractual terms give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
Equity instruments and derivatives are measured at FVTPL, unless they are not
held for trading purposes, in which case an irrevocable election can be made
on initial recognition to measure them at FVOCI with no subsequent
reclassification to profit or loss. This election is made on an investment by
investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as
described above are measured at FVTPL.
All equity positions are measured at FVTPL. Financial assets measured at FVTPL
are recognised in the balance sheet at their fair value. Fair value gains and
losses together with interest coupons and dividend income are recognised in
the Consolidated Statement of Comprehensive Income within Gains on Investment
Assets held at fair value in the period in which they occur. The fair values
of assets and liabilities traded in active markets are based on current bid
and offer prices respectively. If the market is not active the Group
establishes a fair value by using valuation techniques. In addition, on
initial recognition the Group may irrevocably designate a financial asset that
otherwise meets the requirements to be measured at amortised cost or at FVOCI
as FVTPL if doing so eliminates or significantly reduces an accounting
mismatch that would otherwise arise.
The Group does not hold any FVOCI assets.
Classification and measurement - Financial liabilities
Financial liabilities are classified and subsequently measured at amortised
cost, except for:
· Financial liabilities at fair value through profit or loss: this
classification is applied to derivatives, financial liabilities held for
trading and other financial liabilities designated as such at initial
recognition. Gains or losses on financial liabilities designated at fair value
through profit or loss are presented partially in other comprehensive income
(the amount of change in the fair value of the financial liability that is
attributable to changes in the credit risk of that liability, which is
determined as the amount that is not attributable to change in market
conditions that give rise to market risk) and partially in profit or loss (the
remaining amount of change in the fair value of the liability). This is unless
such a presentation would create, or enlarge, an accounting mismatch, in which
case the gains and losses attributable to changes in the credit risk of the
liability are also presented in the Consolidated Statement of Comprehensive
Income.
· Financial liabilities arising from the transfer of financial
assets which did not qualify for derecognition, whereby a financial liability
is recognised for the consideration received for the transfer. In subsequent
years, the Group recognises any expense incurred on the financial liability.
· Financial guarantee contracts and loan commitments.
Credit Assets at amortised cost
Loans are initially recognised at a carrying value equivalent to the funds
advanced to the borrower plus the cost of acquisition fees and transaction
costs. After initial recognition loans are subsequently measured at amortised
cost using the effective interest rate method ("EIRM") less expected credit
losses (see Note 11).
Expected Credit loss allowance for financial assets measured at amortised cost
The credit impairment charge or release in the Consolidated Statement of
Comprehensive Income represents the change in expected credit losses which are
recognised for loans and advances to borrowers, other financial assets held at
amortised cost.
IFRS 9 applies a single impairment model to all financial instruments subject
to impairment testing. Impairment losses are recognised on initial
recognition, and at each subsequent reporting period, even if the loss has not
yet been incurred. In addition to past events and current conditions,
reasonable and supportable forecasts affecting collectability are also
considered when determining the amount of impairment in accordance with IFRS
9. Under the IFRS 9 expected credit loss model, expected credit losses are
recognised at each reporting period, even if no actual loss events have taken
place. In addition to past events and current conditions, reasonable and
supportable forward-looking information that is available without undue cost
or effort is considered in determining impairment, with the model applied to
all financial instruments subject to impairment testing.
At initial recognition, allowance is made for expected credit losses resulting
from default events that are possible within the next 12 months (12-month
expected credit losses). In the event of a significant increase in credit
risk, allowance (or provision) is made for expected credit losses resulting
from all possible default events over the expected life of the financial
instrument (lifetime expected credit losses). Financial assets where 12-month
expected credit losses are recognised are considered to be Stage 1; financial
assets which are considered to have experienced a significant increase in
credit risk are in Stage 2; and financial assets which have defaulted or are
otherwise considered to be credit-impaired are allocated to Stage 3. Stage 2
and Stage 3 are based on lifetime expected credit losses.
The measurement of expected credit loss ("ECL"), is primarily based on the
product of the instrument's probability of default ("PD"), loss given default
("LGD") and exposure at default ("EAD"), taking into account the value of any
collateral held or other mitigants of loss and including the impact of
discounting using the EIR.
· The PD represents the likelihood of a borrower defaulting on its
financial obligation, either over the next 12 months ("12M PD"), or over the
remaining lifetime ("Lifetime PD") of the obligation.
· EAD is based on the amounts the Group expects to be owed at the
time of default, over the next 12 months or over the remaining lifetime. For
example, for a revolving commitment, the Group includes the current drawn
balance plus any further amount that is expected to be drawn up to the current
contractual limit by the time of default, should it occur. The EAD is
discounted back to the reporting date using the EIR determined at initial
recognition.
· LGD represents the Group's expectation of the extent of loss on a
defaulted exposure. LGD varies by type of counterparty, type and seniority of
claim and availability of collateral or other credit support. LGD is expressed
as a percentage loss per unit of EAD. LGD is calculated on a 12-month or
lifetime basis, where 12-month LGD is the percentage of loss expected to be
made if the default occurs in the next 12 months and Lifetime LGD is the
percentage of loss expected to be made if the default occurs over the
remaining expected lifetime of the loan ("Lifetime LGD").
The ECL is determined by estimating the PD, LGD and EAD for each individual
exposure or collective segment. These three components are multiplied together
and adjusted for the likelihood of survival (i.e. the exposure has not prepaid
or defaulted in an earlier month). This effectively calculates an ECL, which
is then discounted back to the reporting date and summed. The discount rate
used in the ECL calculation is the original EIR or an approximation thereof.
The Lifetime PD is developed by applying a maturity profile to the current 12M
PD. The maturity profile looks at how defaults develop on a portfolio from the
point of initial recognition throughout the lifetime of the loans. The
maturity profile is based on historical observed data and is assumed to be the
same across all assets within a portfolio and credit grade band where
supported by historical analysis. The 12-month and lifetime EADs are
determined based on the expected payment profile, which varies by product
type:
· For amortising products and bullet repayment loans, this is based
on the contractual repayments owed by the borrower over a 12-month or lifetime
basis. This is also adjusted for any expected overpayments made by a borrower.
Early repayment/refinance assumptions are also incorporated into the
calculation.
· For revolving products, the EAD is predicted by taking current
drawn balance and adding a "credit conversion factor" which allows for the
expected drawdown of the remaining limit by the time of default. These
assumptions vary by product type and current limit utilisation band, based on
analysis of the Group's recent default data.
The 12-month and lifetime LGDs are determined based on the factors which
impact the recoveries made post default. These vary by product type.
· For secured products, this is primarily based on collateral type and
projected collateral values, historical discounts to market/book values due to
forced sales, time to repossession and recovery costs observed.
· For unsecured products, LGDs are typically set at product level due
to the limited differentiation in recoveries achieved across different
borrowers. These LGDs are influenced by collection strategies, including
contracted debt sales and price.
The main difference between Stage 1 and Stage 2 is the respective PD horizon.
Stage 1 estimates use a maximum of a 12-month PD, while Stage 2 estimates use
a lifetime PD. The main difference between Stage 2 and Stage 3 is that Stage 3
is effectively the point at which there has been a default event. For
financial assets in Stage 3, lifetime ECL continues to be recognised but now
recognises interest income on a net basis. This means that interest income is
calculated based on the gross carrying amount of the financial asset less ECL.
Stage 3 estimates continue to leverage existing processes for estimating
losses on impaired loans, however, these processes are updated to reflect the
requirements of IFRS 9, including the requirement to consider multiple
forward-looking scenarios using independent third-party economic information.
Movements between Stage 1 and Stage 2 are based on whether an instrument's
credit risk as at the reporting date has increased significantly relative to
the date it was initially recognised. Where the credit risk subsequently
improves such that it no longer represents a significant increase in credit
risk since origination, the asset is transferred back to Stage 1.
In assessing whether a borrower has had a significant increase in credit risk,
the following indicators are considered:
· Significant change in collateral value (secured facilities only)
which is expected to increase the risk of default;
· Actual or expected significant adverse change in operating
results of the borrower or performance of collateral;
· Significant adverse changes in business, financial and/or
economic conditions in the market in which the borrower operates;
· Actual or expected forbearance or restructuring;
· Significant increase in credit spread, where this information is
available; and
· Early signs of cashflow/liquidity problems such as delay in
servicing of payables.
However, as a backstop, unless identified at an earlier stage, the credit risk
of financial assets is deemed to have increased significantly when repayments
are more than 30 days past due. Movements between Stage 2 and Stage 3 are
based on whether financial assets are credit impaired as at the reporting
date. IFRS 9 contains a rebuttable presumption that default occurs no later
than when a payment is 90 days past due. The Group uses this 90-day backstop
for all its assets except for UK second charge mortgages, where the Group has
assumed a backstop of 180 days past due as mortgage exposures more than 90
days past due, but less than 180 days, typically show high cure rates and this
aligns to the Group's risk management practices. Assets can move in both
directions through the stages of the impairment model.
In assessing whether a borrower is credit-impaired, the following qualitative
indicators are considered:
· Whether the borrower is in breach of financial covenants, for
example where concessions have been made by the lender relating to the
borrower's financial difficulty or there are significant adverse changes in
business, financial or economic conditions on which the borrower operates;
· Where the credit risk has increased, the remaining lifetime PD at
the reporting date is assessed in comparison to the residual lifetime PD
expected at the reporting date when the exposure was first recognised; and
· Any cases of forbearance.
The criteria above have been applied to all Credit Assets at amortised cost
held by the Group and are consistent with the definition of default used for
internal credit risk management purposes. The default definition has been
applied consistently to model the PD, EAD and LGD throughout the Group's
expected credit loss calculations.
Inputs into the assessment of whether a financial instrument is in default and
their significance may vary over time to reflect changes in circumstances.
Under IFRS 9, when determining whether the credit risk (i.e. the risk of
default) on a financial instrument has increased significantly since initial
recognition, reasonable and supportable information that is relevant and
available without undue cost or effort, including both quantitative and
qualitative information and analysis based on historical experience, credit
assessment and forward-looking information.
The measurement of expected credit losses for each stage and the assessment of
significant increases in credit risk considers information about past events
and current conditions as well as reasonable and supportable forward-looking
information. A "Base case" view of the future direction of relevant economic
variables and a representative range of other possible forecasts scenarios
have been developed. The process has involved developing two additional
economic scenarios and considering the relative probabilities of each outcome.
The base case represents a most likely outcome and is aligned with information
used for other purposes, such as strategic planning and budgeting. The number
of scenarios and their attributes are reassessed at each reporting date. All
of the portfolios of the Group use one positive, one optimistic and one
downside scenario. These scenario weightings are determined by a combination
of statistical analysis and expert judgement, taking account of the range of
possible outcomes each chosen scenario is representative of.
The estimation and application of forward-looking information requires
significant judgement. PD, LGD and EAD inputs used to estimate Stage 1 and
Stage 2 credit loss allowances, are modelled and adjusted based on the
macroeconomic variables (or changes in macroeconomic variables) that are most
closely correlated with credit losses in the relevant portfolio. The Group has
utilised macroeconomic scenarios prepared and provided by Oxford Economics
("Oxford"). Oxford combines two decades of forecast errors with the
quantitative assessment of the current risks facing the global and domestic
economy to produce robust forward-looking distributions for the economy.
Oxford construct three alternative scenarios at specific percentile points in
the distribution. In any distribution, the probability of a given discrete
scenario is close to zero. Therefore, scenario probabilities represent the
probability of that scenario or similar scenarios occurring. In effect, a
given scenario represents the average of a broader bucket of similar severity
scenarios and the probability reflects the width of that bucket. Given that it
is known where the IFRS 9 scenarios sit in the distribution (the percentiles),
their probability (the width of the bucket of similar scenarios) depends on
how many scenarios are chosen. Scenario probabilities must add up to 100 per
cent so the more scenarios chosen, the smaller the section of the
distribution, or bucket, each scenario represents and therefore the smaller
the probability. This allows the probabilities to be calculated according to
whichever subset of scenarios have been chosen for use in the ECL calculation.
Oxford updates these scenarios on a quarterly basis to reflect changes to the
macroeconomic environment. The Group updates the scenarios during the year if
economic conditions change materially. Oxford selects the scenarios to
represent a broadly fixed probability within the distribution of potential
outcomes. As such the Group has maintained the probability of each scenario at
a broadly constant level despite the changing macroeconomic environment. The
Base case is given a 40 per cent weighting and the downside and upside a 30
per cent weighting each, which is unchanged from the prior year.
As with any economic forecasts, the projections and likelihoods of occurrence
are subject to a high degree of inherent uncertainty and therefore the actual
outcomes may be significantly different to those projected. The Group
considers these forecasts to represent its best estimate of the possible
outcomes and has analysed the non-linearities and asymmetries within the
Group's different portfolios to establish that the chosen scenarios are
appropriately representative of the range of possible scenarios.
Other forward-looking considerations not otherwise incorporated within the
above scenarios, such as the impact of any regulatory, legislative or
political changes, have also been considered, but no adjustment has been made
to the ECL for such factors. This is reviewed and monitored for
appropriateness at each reporting date.
Expected Credit loss allowance for Receivables
Receivables consist of trade and other debtor balances and prepayments and
accrued income. Trade receivables balances are represented by fees receivable
for investment fund management and advisory services provided during the year
to the Group's customers. The Group's customers are funds that the Group
manages or advises. As such, the Group has detailed and up-to-date information
on the financial position and outlook of its counterparties. Receivable
balances are generally collected on a monthly or quarterly basis and are
therefore short-term in nature. The Group applies a simplified approach in
calculating ECLs and recognises a loss allowance based on lifetime ECLs at
each reporting date. Given the historic rate of recoverability is 100 per cent
and the absence of reasons to believe the recoverability pattern will change,
management's assessment is that ECL calculated under IFRS 9 would be
immaterial at the end of the current and previous reporting period. Management
will continue to assess the recoverability at each reporting date for changes
in the circumstances surrounding the recoverability of the trade and other
receivables, and recognise an expected credit loss allowance when appropriate.
Write-off policy for financial assets measured at amortised cost
A loan or advance is normally written off, either partially or in full,
against the related allowance when the proceeds from realising any available
security have been received or there is no realistic prospect of recovery and
the amount of the loss has been determined. Subsequent recoveries of amounts
previously written off decrease the amount of impairment losses recorded in
the income statement.
Modification of loans
The Group sometimes renegotiates or otherwise modifies the contractual cash
flows of loans to customers. When this happens, the Group assesses whether or
not the new terms are substantially different to the original terms. The Group
does this by considering, among others, the following factors:
· if the borrower is in financial difficulty, whether the
modification merely reduces the contractual cash flows to amounts the borrower
is expected to be able to pay;
· whether any substantial new terms are introduced, such as a
profit share/equity-based return that substantially affects the risk profile
of the loan;
· significant extension of the loan term when the borrower is not
in financial difficulty;
· significant change in the interest rate;
· change in the currency the loan is denominated in; and
· insertion of collateral, other security or credit enhancements
that significantly affect the credit risk associated with the loan.
If the terms are substantially different, the Group derecognises the original
financial asset and recognises a new asset at fair value and recalculates a
new EIR for the asset. The date of renegotiation is consequently considered to
be the date of initial recognition for impairment calculation purposes,
including for the purpose of determining whether a significant increase in
credit risk has occurred. However, the Group also assesses whether the new
financial asset recognised is deemed to be credit-impaired at initial
recognition, especially in circumstances where the renegotiation was driven by
the debtor being unable to make the originally agreed payments. Differences in
the carrying amounts are also recognised in the Consolidated Statement of
Comprehensive Income as a gain or loss on derecognition. If the terms are not
substantially different, the renegotiation or modification does not result in
derecognition, and the Group recalculates the gross carrying amount based on
the revised cash flows of the financial asset and recognises a modification
gain or loss in the Consolidated Statement of Comprehensive Income. The new
gross carrying amount is recalculated by discounting the modified cash flows
at the original EIR (or credit-adjusted EIR for purchased or originated
credit-impaired financial assets).
Modification of financial assets
The Group sometimes modifies the terms of loans provided to customers due to
commercial renegotiations, or for distressed loans, with a view to maximising
recovery.
Such restructuring activities include extended payment term arrangements,
payment holidays and payment forgiveness. Restructuring policies and practice
are based on indicators or criteria which, in the judgement of management,
indicate that payment will most likely continue. These policies are kept under
continuous review. Restructuring is most commonly applied to term loans.
The risk of default of such assets after modification is assessed at the
reporting date and compared with the risk under the original terms at initial
recognition, when the modification is not substantial and so does not result
in derecognition of the original assets. The Group monitors the subsequent
performance of modified assets. The Group may determine that the credit risk
has significantly improved after restructuring, so that the assets are moved
from Stage 2 or Stage 3.
Collateral and other credit enhancements
The Group employs a range of policies to mitigate credit risk. The most common
of these is accepting collateral for funds advanced. The Group has internal
policies of the acceptability of specific classes of collateral or credit risk
mitigation.
The Group prepares a valuation of the collateral obtained as part of the loan
origination process. This assessment is reviewed periodically. The principal
collateral types for loans and advances are:
· mortgages over residential properties;
· security over our borrowers receivables;
· margin agreement for derivatives, for which the Group has also
entered into master netting agreements;
· charges over business assets such as premises, inventory and
accounts receivable; and
· charges over financial instruments such as debt securities and
equities.
Longer-term finance and lending to corporate entities are generally secured;
revolving individual credit facilities are generally unsecured.
Collateral held as security for financial assets other than loans and advances
depends on the nature of the instrument. Derivatives are also generally
collateralised, such as collateralised debt obligations, in order to provide
collateral as a form of security for the obligations arising from the
derivative.
The Group closely monitors collateral held for financial assets considered to
be credit-impaired, as it becomes more likely that the Group will take
possession of collateral to mitigate potential credit losses.
Derecognition other than a modification
Financial assets, or a portion thereof, are derecognised when the contractual
rights to receive the cash flows from the assets have expired, or when they
have been transferred and either (i) the Group transfers substantially all the
risks and rewards of ownership, or (ii) the Group neither transfers nor
retains substantially all the risks and rewards of ownership and the Group has
not retained control.
The Group enters into transactions where it retains the contractual rights to
receive cash flows from assets but assumes a contractual obligation to pay
those cash flows to other entities and transfers substantially all of the
risks and rewards. These transactions are accounted for as "pass-through"
transfers that result in derecognition if the Group:
· has no obligation to make payments unless it collects equivalent
amounts from the assets;
· is prohibited from selling or pledging the assets; and
· has an obligation to remit any cash it collects from the assets
without material delay.
Derecognition
Financial liabilities are derecognised when they are extinguished (i.e. when
the obligation specified in the contract is discharged, cancelled or expires).
Different terms, as well as substantial modifications of the terms of existing
financial liabilities, are accounted for as an extinguishment of the original
financial liability and the recognition of a new financial liability. The
terms are substantially different if the discounted present value of the cash
flows under the new terms, including any fees paid net of any fees received
and discounted using the original EIR, is at least 10 per cent different from
the discounted present value of the remaining cash flows of the original
financial liability. In addition, other qualitative factors, such as the
currency that the instrument is denominated in, changes in the type of
interest rate, new conversion features attached to the instrument and change
in covenants are also taken into consideration. If an exchange of debt
instruments or modification of terms is accounted for as an extinguishment,
any costs or fees incurred are recognised as part of the gain or loss on the
extinguishment. If the exchange or modification is not accounted for as an
extinguishment, any costs or fees incurred adjust the carrying amount of the
liability and are amortised over the remaining term of the modified liability.
Investments held at fair value through profit or loss
The Investments held at FVTPL include Equity Assets and Credit Assets.
Equity Assets held at FVTPL are valued in accordance with the International
Private Equity and Venture Capital Valuation Guidelines ("IPEVCV") effective 1
January 2019 with the latest update in December 2022 as recommended by the
British Private Equity and Venture Capital Association. Credit Assets held at
FVTPL are valued incorporating the effect of changes in interest rates and
credit risk using similar techniques to those described in the section of
expected credit loss allowance for financial assets measured at amortised
costs earlier in this Note.
Equity Assets are instruments that have equity-like returns; that is,
instruments that do not contain a contractual obligation to pay and that
evidence a residual interest in the issuer's net assets. Examples of equity
instruments include ordinary shares or investments in Private Equity funds
managed or advised by the Group. Investments into funds managed by the Group
are valued on the net asset value of each fund. The valuations typically
reflect the fair value of the Group's proportionate share of each investment
as at the reporting date or the latest available date.
Credit Assets at FVTPL consist of loans made to counterparties where the
contractual cash flows do not meet the requirements of the solely payments of
principal and interest test or are otherwise classified at fair value,
together with investments in Private Credit funds managed or advised by the
Group. See the section on Classification and measurement - Financial assets
earlier in this Note. Examples of credit instruments include credit
instruments where incremental cash flows are due contingent on certain events
occurring.
Credit Assets at FVTPL are valued based off the net asset value of each fund.
The valuations typically reflect the fair value of the Group's proportionate
share of each investment as at the reporting date or the latest available
date. The majority of credit assets at FVTPL are priced at their amortised
cost value given that they are floating rate assets and performing in line
with expectations.
Credit Assets at FVTPL are priced at their amortised cost value given that
they are floating rate assets and performing in line with expectations.
Purchases and sales of unquoted investments are recognised when the contract
for acquisition or sale becomes unconditional.
IFRS 13 requires the Group to classify its financial instruments held at fair
value using a hierarchy that reflects the significance of the inputs used in
the valuation methodologies. These are as follows:
· Level 1 - quoted prices in active markets for identical
investments.
· Level 2 - other significant observable inputs (including quoted
prices for similar investments, interest rates, prepayments, credit risk,
etc.).
· Level 3 - significant unobservable inputs (including the Group's
own assumptions in determining the fair value of investments).
An investment is always categorised as Level 1, 2 or 3 in its entirety. In
certain cases, the fair value measurement for an investment may use a number
of different inputs that fall into different levels of the fair value
hierarchy. The assessment of the significance of a particular input to the
fair value measurement requires judgement and is specific to the investment.
The gain on fair value is shown in the 'Gains on Investment Assets held at
fair value' line on the Consolidated Statement of Comprehensive Income.
Fixed assets
Fixed assets are shown at cost less accumulated depreciation. Depreciation is
calculated by the Group on a straight-line basis by reference to the original
cost, estimated useful life and residual value. Cost includes the original
purchase price of the asset and the costs attributable to bringing the asset
to its working condition for its intended use. The period of estimated useful
life for this purpose is up to 10 years. Residual values are assumed to be
nil.
Plant and equipment is stated at historical cost less accumulated depreciation
and impairment. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Depreciation is charged so as to allocate the cost of assets less their
residual value over their estimated useful lives, using the straight-line
method.
Depreciation is provided on the following basis:
Fixtures and fittings ‑ 3 years
Office equipment ‑ 3 years
Electric vehicles ‑ 5 years
Leasehold improvements - 10 years
The assets' residual values, useful lives and depreciation methods are
reviewed, and adjusted prospectively if appropriate, or if there is an
indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with
the carrying amount and are recognised in the Consolidated Statement of
Comprehensive Income.
Goodwill
Goodwill is initially measured at cost, which constitutes the excess of the
aggregate of the consideration transferred over the net identifiable assets
acquired and liabilities assumed. If the fair value of the net assets acquired
is in excess of the aggregate consideration transferred, the Group reassesses
whether it has correctly identified all of the assets acquired and all of the
liabilities assumed, and reviews the procedures used to measure the amounts to
be recognised at the acquisition date. If the reassessment still results in an
excess of the fair value of net assets acquired over the aggregate
consideration transferred, then the gain is recognised in the Consolidated
Statement of Comprehensive Income.
After initial recognition, goodwill is measured at cost less any accumulated
impairment losses.
Goodwill is tested for impairment on an annual basis and whenever there is an
indication that the recoverable amount of a cash-generating unit ("CGU") is
less than its carrying amount. Any impairment loss recognised on the goodwill
are not reversed subsequently. For the purpose of impairment testing, goodwill
acquired in a business combination is, from the acquisition date, allocated to
each of the Group's CGUs or group of CGUs that are expected to benefit from
the combination, irrespective of whether other assets or liabilities of the
acquiree are assigned to those units. A CGU represents the lowest level at
which goodwill is monitored for internal management purposes.
Where goodwill has been allocated to a CGU and part of the operation within
that unit is disposed of, the goodwill associated with the disposed operation
is included in the carrying amount of the operation when determining the gain
or loss on disposal. Goodwill disposed in these circumstances is measured
based on the relative values of the disposed operation and the portion of the
CGU retained.
As explained in Note 4, on 14 February 2024, the Company acquired the entire
issued share capital in Pollen Street Capital Holdings Limited from its
subsidiary, Pollen Street Limited. This is referred to as the Distribution.
The Distribution was approved by shareholders on 11 October 2023. At this
date, the Group considered that it was highly probable that the Distribution
would take place, and so the Group carried out an impairment assessment of the
goodwill to determine the carrying amount of goodwill that formed part of the
Distribution.
Intangibles
Intangible assets, which constitute acquired customer relationship assets
acquired from a business combination, are stated at cost less accumulated
amortisation and accumulated impairment losses. Intangible assets are assessed
at each reporting date when there are indicators of impairment.
Amortisation is calculated using the straight-line method to allocate the
amortised amount of the assets to their residual values over their estimated
useful lives.
Leases
The Group assesses at contract inception whether a contract is, or contains, a
lease. That is, if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration.
Group as a lessee
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 lease assets
representing the right to use the underlying assets.
Lease assets
The Group recognises lease assets at the commencement date of the lease (i.e.,
the date the underlying asset is available for use). Lease assets are measured
at cost, less any accumulated depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The cost of lease assets includes
the amount of lease liabilities recognised, initial direct costs incurred, an
estimate of costs to be incurred in restoring the underlying asset to the
condition required by the terms and conditions of the lease and lease payments
made at or before the commencement date less any lease incentives received.
Lease assets are depreciated on a straight-line basis over the shorter of the
lease term and the estimated useful lives of the assets.
If ownership of the leased asset transfers to the Group at the end of the
lease term or the cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated useful life of the asset.
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 less any lease incentives
receivable and amounts expected to be paid under residual value guarantees.
The lease payments also include payments of penalties for terminating the
lease, if the lease term reflects the Group exercising the option to
terminate.
In calculating the present value of lease payments, the Group uses its
incremental borrowing rate at the lease commencement date because 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. In addition, the carrying
amount of lease liabilities is remeasured if there is a modification, a change
in the lease term, a change in the lease payments (e.g., changes to future
payments resulting from a change in an index or rate used to determine such
lease payments) or a change in the assessment of an option to purchase the
underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term
leases (i.e., those leases that have a lease term of 12 months or less from
the commencement date and do not contain a purchase option). It also applies
the lease of low-value assets recognition exemption to leases of office
equipment that are considered to be low value. Lease payments on short-term
leases and leases of low-value assets are recognised as an expense on a
straight-line basis over the lease term.
Carried interest receivable
Carried interest represents unrealised and realised shares of fund profits
from holdings in carried interest partnerships where the Group receives
variable returns as an incentive for management of the underlying funds. The
realised amount is the amount actually received. For the unrealised
performance, the amount recognised is determined against an assessment of the
underlying investor returns exceeding an agreed threshold or hurdle, and is
either accounted for under IFRS 9 (for carried interest partnerships acquired
as part of the Combination) or under IFRS 15 (for non-acquired carried
interest partnerships). Intra-group, a performance fee is paid from the
Investment Company to the Asset Manager when a performance hurdle is reached,
this is then eliminated on consolidation.
Movements in fair value, and amounts accrued as revenue under IFRS 15, are
shown in the 'Carried interest and performance fee income' line on the
Consolidated Statement of Comprehensive Income, with the outstanding balance
shown in the 'Carried interest' line on the Consolidated Statement of
Financial Position and are typically presented as non-current assets unless
they are expected to be received within the next 12 months.
Cash and cash equivalents
Cash and cash equivalents, which are presented as a single class of asset on
the Consolidated Statement of Financial Position, comprise cash at bank,
including cash that is restricted and held in reserve.
Financial liabilities
Financial liabilities are classified according to the substance of the
contractual arrangements entered into.
Derivatives
The Group uses foreign exchange spot, forward and swap transactions to hedge
foreign exchange movements in non-GBP assets or liabilities in order to
minimise foreign exchange exposure.
Derivative financial instruments are initially measured at fair value on the
date on which the derivative contract is entered into and are subsequently
measured at fair value at each reporting date. The Group does not designate
derivatives as cash flow hedges and so all fair value movements are recognised
in the Income Statement in the 'Gains on Investment Assets held at fair value'
line on the Consolidated Statement of Comprehensive Income. The fair value of
unsettled forward currency contracts is calculated by reference to the market
for forward contracts with similar maturities.
Interest-bearing borrowings
Interest-bearing borrowings are initially recognised at a carrying value
equivalent to the proceeds received net of issue costs associated with the
borrowings. After initial recognition, interest-bearing borrowings are
subsequently measured at amortised cost using the effective interest rate
method.
Finance costs
Finance costs are accrued on the EIR basis and are presented as a separate
line on the Consolidated Statement of Comprehensive Income.
Dividends
Dividends to shareholders are recognised in the period in which they are paid.
Income
The Group has four primary sources of income: management fee income, carried
interest and performance fee income, interest income on Credit Assets held at
amortised cost, and gains on Investment Assets held at fair value.
Management fee income includes fees charged by the Group to the funds that it
manages for the provision of investment fund management and advisory services.
Management fee revenue is shown net of any value added tax. Management fees
are earned over a period and are recognised on an accrual basis in the same
period in which the service is performed. Management fees are generally
calculated at the end of each measurement period as a percentage of fund
assets managed in accordance with individual management agreements or limited
partnership agreements.
On Private Equity managed funds management fee income is charged from the
inception of the fund. Where an LP enters the fund as part of subsequent
closes "catch-up" management fee income is calculated and charged as if the LP
had entered the fund on first close. These management fees are earned over a
prior period where the provision of investment fund management and advisory
services has already been provided, therefore these catch-up management fees
are recognised immediately in full. This is not applicable on Private Credit
funds.
Carried interest and performance fee income includes income from holdings in
carried interest partnerships where the Group receives variable returns as an
incentive for the funds that it manages. Carried interest represents a share
of fund profits through the Group's holdings in carried interest partnerships.
The amount is determined by the level of accumulated profits exceeding an
agreed threshold or hurdle. The carried interest income is recognised when the
performance obligations are expected to be met. Income is only recognised to
the extent that it is highly probable that there would not be a significant
reversal of any accumulated revenue recognised on the completion of a fund.
The uncertainty of future fund performance is reduced through the application
of discounts in the calculation of carried interest income. Performance fees
are generally calculated as a percentage of the appreciation in the net asset
value of a fund above a defined hurdle, and are recognised on an accrual basis
when the fee amount can be estimated reliably, and it is highly probable that
it will not be subject to significant reversal.
Management fees and performance fees are charged to the Investment Company by
the Asset Manager. These fees are shown in Note 6, operating segments.
However, they are eliminated on consolidation.
Interest income on Credit Assets held at amortised cost is generated from
loans originated by the Group. Interest from loans are recognised in the
Consolidated Statement of Comprehensive Income for all instruments measured at
amortised cost using the EIRM. The EIRM is a method of calculating the
amortised cost of a financial asset or financial liability and of allocating
the interest income or interest expense over the relevant period. The
effective interest rate ("EIR") is the rate that exactly discounts estimated
future cash flows through the expected life of the financial instrument or,
when appropriate, a shorter period to the net carrying amount of the financial
asset or financial liability. When calculating the EIR, the Group takes into
account all contractual terms of the financial instrument, for example
prepayment options, but does not consider future credit losses. The
calculation includes all fees paid or received between parties to the contract
that are an integral part of the EIR, transaction costs and all other premiums
or discounts. Fees and commissions which are not considered integral to the
EIR model and deposit interest income are recognised on an accruals basis when
the service has been provided or received.
Gains on Investment Assets held at fair value include realised and unrealised
income on assets accounted for at fair value. Refer to the Investments held at
fair value through profit or loss section for further details.
Pensions
The Group makes contributions into employee personal pension schemes. Once the
contributions have been paid, the Group has no further payment obligations.
The contributions are recognised as an expense in the Consolidated Statement
of Comprehensive Income when they fall due. Amounts not paid are shown in
accruals as a liability in the Consolidated Statement of Financial Position.
Share-Based Payments
The Group grants annual bonuses to its Executive Directors and other senior
employees that are deferred into share-based awards under the Group's deferred
bonus plan. The share-based awards generally vest after three years, subject
to the opportunity for co-investment. The co-investment opportunity permits
the employee to collect the deferred award early, either in shares or up front
in cash, provided they elect to apply the after-tax proceeds of the deferred
award into a fund managed by the Group that has a contractual duration of
longer than three years.
The Group accounts for the deferred awards as share-based payments. The awards
are considered to be compound financial instruments, because the employee has
the right to demand settlement in cash. The Group first measures the fair
value of the cash component, which is considered to be a cash-settled
share-based payment, and then measures the fair value of the equity component
taking into account that the counterparty must forfeit the right to receive
cash in order to receive the equity instrument, which is considered to be an
equity-settled share-based payment.
Segmental reporting
The Group has two segments: the Asset Manager segment and the Investment
Company segment. The primary revenue streams for the Asset Manager segment
consist of management fees and performance fees or carried interest arising
from managing Private Equity and Private Credit funds. The Investment Company
segment primarily consists of the Group Investment Assets and borrowings. The
primary revenue stream for the Investment Company segment is interest income
and fair value gains on Investments held at fair value.
The Asset Manager segment charges management and performance fees to the
Investment Company segment for managing the segment's assets. These fees are
shown in the segmental results. However, they are eliminated in the
consolidated financial statements. Refer to Note 6 for further details.
Taxation
Following the Reorganisation that occurred on 24 January 2024, Pollen Street
Limited ceased to be classified as an investment trust under Section 1158 of
the Corporation Tax Act 2010. As such, Pollen Street Limited will incur
corporation tax on its profits from the beginning of the period. Prior to 24
January 2024, the tax expense of the Group arose within the Asset Manager
segment and comprised current and deferred tax. Further information on the
Reorganisation is available in Note 4.
Current income tax
Current income tax assets and liabilities are measured at the amount expected
to be recovered from or paid to the taxation authorities. The tax rates and
tax laws used to compute the amount are those that are enacted or
substantively enacted at the reporting date in the countries where the Group
operates and generates taxable income.
Current income tax relating to items recognised directly in equity is
recognised in equity and not in the Consolidated Statement of Comprehensive
Income. Management periodically evaluates positions taken in the tax returns
with respect to situations in which applicable tax regulations are subject to
interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax is provided using the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences,
except:
· when the deferred tax liability arises from the initial recognition of
goodwill or an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss; and
· in respect of taxable temporary differences associated with investments
in subsidiaries, associates and interests in joint arrangements, when the
timing of the reversal of the temporary differences can be controlled and it
is probable that the temporary differences will not reverse in the foreseeable
future.
Deferred tax assets are recognised for all deductible temporary differences,
the carry forward of unused tax credits and any unused tax losses. Deferred
tax assets are recognised to the extent that it is probable that taxable
profit will be available against which the deductible temporary differences,
and the carry forward of unused tax credits and unused tax losses can be
utilised, except:
· when the deferred tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss;
and
· in respect of deductible temporary differences associated with
investments in subsidiaries, associates and interests in joint arrangements,
deferred tax assets are recognised only to the extent that it is probable that
the temporary differences will reverse in the foreseeable future and taxable
profit will be available against which the temporary differences can be
utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax
asset to be utilised. Unrecognised deferred tax assets are reassessed at each
reporting date and are recognised to the extent that it has become probable
that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the period when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised
in Other Comprehensive Income ("OCI") or directly in equity.
Tax benefits acquired as part of a business combination, but not satisfying
the criteria for separate recognition at that date, are recognised
subsequently if new information about facts and circumstances change. The
adjustment is either treated as a reduction in goodwill (as long as it does
not exceed goodwill) if it was incurred during the measurement period or
recognised in the Consolidated Statement of Comprehensive Income.
The Group offsets deferred tax assets and deferred tax liabilities if and only
if it has a legally enforceable right to set off current tax assets and
current tax liabilities and the deferred tax assets and deferred tax
liabilities relate to income taxes levied by the same taxation authority on
either the same taxable entity or different taxable entities which intend
either to settle current tax liabilities and assets on a net basis, or to
realise the assets and settle the liabilities simultaneously, in each future
period in which significant amounts of deferred tax liabilities or assets are
expected to be settled or recovered.
Sales tax
Expenses and assets are recognised net of the amount of sales tax, except:
· when the sales tax incurred on a purchase of assets or services is not
recoverable from the taxation authority, in which case, the sales tax is
recognised as part of the cost of acquisition of the asset or as part of the
expense item, as applicable; and
· when receivables and payables are stated with the amount of sales tax
included.
The net amount of sales tax recoverable from, or payable to, the taxation
authority is included as part of receivables or payables in the Consolidated
Statement of Financial Position.
Expenses
All expenses are accounted for on an accruals basis. During the year, all
expenses have been presented within retained earnings. In the prior year, all
expenses were presented in retained earnings.
Foreign currency
The financial statements have been prepared in Pounds Sterling because that is
the currency of the majority of the transactions during the year, so has been
selected as the presentational currency.
The liquidity of the Group is managed on a day-to-day basis in Pounds Sterling
as the Group's performance is evaluated in that currency. Therefore, the
Directors consider Pounds Sterling as the currency that most faithfully
represents the economic effects of the underlying transactions, events and
conditions and is therefore the functional currency.
Transactions involving foreign currencies are converted at the exchange rate
ruling at the date of the transaction. Foreign currency monetary assets and
liabilities are translated into Pounds Sterling at the exchange rate ruling on
the year-end date. Foreign exchange differences arising on translation would
be recognised in the Consolidated Statement of Comprehensive Income.
Receivables
Receivables do not carry any interest and are short term in nature. They are
initially stated at their nominal value and reduced by appropriate allowances
for expected credit losses (if any).
Payables
Payables represent amounts for goods and services provided to the consolidated
entity prior to the end of the financial period and which are unpaid. The
amounts are unsecured and are usually paid within 30 days of recognition.
Payables are non-interest-bearing and are initially stated at their nominal
value.
Shares
Ordinary and treasury shares are classified as equity. The costs of issuing or
acquiring equity are recognised in equity (net of any related income tax
benefit), as a reduction of equity on the condition that these are incremental
costs directly attributable to the equity transaction that otherwise would
have been avoided.
The costs of an equity transaction that is abandoned are recognised as an
expense. Those costs might include registration and other regulatory fees,
legal fees, accounting and other professional advisers, printing costs and
stamp duties.
Treasury shares have no entitlements to vote and are held directly by the
Company.
3. Significant accounting estimates and judgements
The UK-adopted International Accounting Standards requires the Group to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and
expenses during the reporting period. IFRS requires the Directors, in
preparing the Group's financial statements, to select suitable accounting
policies, apply them consistently and make judgements and estimates that are
reasonable. The Group's estimates and assumptions are based on historical
experience and expectations of future events and are reviewed on an ongoing
basis. Although these estimates are based on the Directors' best knowledge of
the amount, actual results may differ materially from those estimates.
Estimates
The estimates of most significance to the financial statements are detailed
below. Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
Expected Credit loss allowance for financial assets measured at amortised cost
The calculation of the Group's ECL allowances and provisions against loan
commitments and guarantees under IFRS 9 is complex and involves the use of
significant judgement and estimation. Loan Impairment Provisions represent an
estimate of the losses incurred in the loan portfolios at the balance sheet
date. Individual impairment losses are determined as the difference between
the carrying value and the present value of estimated future cash flows,
discounted at the loans' original EIR. The calculation involves the
formulation and incorporation of multiple forward-looking economic conditions
into ECL to meet the measurement objective of IFRS 9, depending on a range of
factors such as changes in the economic environment in the UK. The most
significant factors are set out below.
Definition of default - The PD of an exposure, both over a 12-month period and
over its lifetime, is a key input to the measurement of the ECL allowance.
Default has occurred when there is evidence that the customer is experiencing
significant financial difficulty which is likely to affect the ability to
repay amounts due.
A number of the Group's loans are secured against underlying collateral; for
example, real estate and SME loans. The Directors do not consider the value of
this collateral to directly influence the probability of default. However, the
Directors consider that the structure of some of the Group's lending
arrangements may mean that this collateral generates income for the Group's
borrowers that supports the borrowers' ability to service the loan from the
Group and therefore influence the probability of default.
The definition of default adopted by the Group is described in expected credit
loss allowance for financial assets measured at amortised cost above. The
Group has rebutted the presumption in IFRS 9 that default occurs no later than
when a payment is 90 days past due on some of its portfolio.
The lifetime of an exposure - To derive the PDs necessary to calculate the ECL
allowance it is necessary to estimate the expected life of each financial
instrument. A range of approaches has been adopted across different product
groupings including the full contractual life and taking into account
behavioural factors such as early repayments and refinancing. The Group has
defined the lifetime for each product by analysing the time taken for all
losses to be observed and for a material proportion of the assets to fully
resolve through either closure or write-off.
Significant increase in credit risk ("SICR") - Performing assets are
classified as either Stage 1 or Stage 2. An ECL allowance equivalent to 12
months' expected credit losses is established against assets in Stage 1;
assets classified as Stage 2 carry an ECL allowance equivalent to lifetime
expected credit losses. Assets are transferred from Stage 1 to Stage 2 when
there has been a SICR since initial recognition.
The Directors do not consider the value of any collateral to directly trigger
whether there has been a significant increase in credit risk. However, the
Directors consider that the structure of some of the Group's lending
arrangements may mean that the underlying loans that the Group is financing
generate income for the borrowers that supports the borrowers' ability to
service the loan from the Group and therefore influence whether there has been
a SICR.
The Group uses a quantitative test together with qualitative indicators and a
backstop of 30 days past due for determining whether there has been a SICR.
The setting of precise trigger points combined with risk indicators requires
judgement. The use of different trigger points may have a material impact upon
the size of the ECL allowance.
Forward-looking information - IFRS 9 requires the incorporation of
forward-looking macroeconomic information that is reasonable and supportable,
but it provides limited guidance on how this should be performed. The
measurement of expected credit losses is required to reflect an unbiased
probability-weighted range of possible future outcomes.
In order to do this the Group uses a model to project a number of key
variables to generate future economic scenarios. These are ranked according to
severity of loss and three economic scenarios have been selected to represent
an unbiased and full loss distribution. They represent a "most likely outcome"
(the Base case scenario) and two, less likely, "outer" scenarios, referred to
as the "Upside" and "Downside" scenarios. These scenarios are used to produce
a weighted average PD for each product grouping which is used to calculate the
related ECL allowance. This weighting scheme is deemed appropriate for the
computation of unbiased ECL. Key scenario assumptions are set using external
economist forecasts, helping to ensure the IFRS 9 scenarios are unbiased and
maximise the use of independent information. Using externally available
forecast distributions helps ensure independence in scenario construction.
While key economic variables are set with reference to external distributional
forecasts, the overall narrative of the scenarios is aligned to the
macroeconomic risks faced by the Group at 30 June 2024.
The choice of alternative scenarios and probability weighting is a combination
of quantitative analysis and judgemental assessments, designed to ensure that
the full range of possible outcomes and material non-linearity are captured.
Paths for the two outer scenarios are benchmarked to the Base scenario and
reflect the economic risk assessment. Scenario probabilities reflect
management judgement and are informed by data analysis of past recessions,
transitions in and out of recession, and the current economic outlook. The key
assumptions made, and the accompanying paths, represent our "best estimate" of
a scenario at a specified probability. Suitable narratives are developed for
the central scenario and the paths of the two outer scenarios. It may be
insufficient to use three scenarios in certain economic environments.
Additional analysis may be requested at management's discretion, including the
production of extra scenarios. We anticipate there will only be limited
instances when the standard approach will not apply. The Base case, Upside and
Downside scenarios are usually generated annually and those described herein
reflect the conditions in place at the balance sheet date and are only updated
during the period if economic conditions change significantly.
The Group's mild upside scenario can be thought of as an alternative, more
optimistic, base case in which several different upside risks materialise. In
this scenario, the UK economy records growth of 3% in 2024 and 2.9% in 2025.
The labour market recovers gradually, and the unemployment rate falls to its
recent decade-low of 3.6% by mid-2029. Supported by the turnaround in
confidence, incomes and employment, residential house prices only see a mild
fall in 2024-25 and recover thereafter. A sharp increase in consumption lifts
financial market sentiment from its current depressed levels resulting in
renewed gains in asset prices. The one-year forecast changes in key economic
drivers are shown in the table below.
The base case forecasts unemployment to peak at 4.4% in December 2024, and the
Bank of England base rate to reduce to 2.0% by the end of 2027. The downside
scenario forecasts unemployment to reach a peak of 6.9% in late 2027 and
remain relatively high thereafter, staying above 5.5% over the entire forecast
period. To counter the economic downturn, the downside scenario forecasts the
base rate to fall more quickly to 1.5% by December 2026.
See Note 11 for a breakdown of IFRS 9 provisioning.
As at 30 June 2024 Base Upside Downside
UK unemployment rate yearly change (0.18%) (0.49%) 1.26%
UK HPI yearly change 0.99% 2.65% (0.77%)
UK Base Rate yearly change (0.92%) 0.50% (2.00%)
Loss given default - referred to as LGD, represents the expectation of the
extent of loss on a defaulted exposure. LGD varies by type of counterparty,
type and seniority of claim and availability of collateral or other credit
support. LGD is expressed as a percentage loss per unit of exposure at the
time of default. LGD is calculated on a 12-month or lifetime basis, where
12-month LGD is the percentage of loss expected to be made if the default
occurs in the next 12 months and Lifetime LGD is the percentage of loss
expected to be made if the default occurs over the remaining expected lifetime
of the loan.
The 12-month and lifetime LGDs are determined based on the factors which
impact the recoveries made post default. These vary by product type:
· For secured products, this is primarily based on collateral type
and projected collateral values, historical discounts to market/book values
due to forced sales, time to repossession and recovery costs observed.
· For unsecured products, LGDs are typically set at product level
due to the limited differentiation in recoveries achieved across different
borrowers. These LGDs are influenced by collection strategies, including
contracted debt sales and price.
Exposure at default - referred to as EAD, is based on the amounts expected to
be owed at the time of default, over the next 12 months or over the remaining
lifetime. IFRS 9 requires an assumed draw down profile for committed amounts.
The Group also considers post-model adjustments to address model limitations
or factors that have not been captured in the models. These represent the
factors that are not fully accounted for as part of the modelling described
above, such as potential uncertainty arising from the cost-of-living crisis
and the current economic environment.
Equity Asset valuation
The valuation of unquoted investments and investments for which there is an
inactive market is a key area of estimation and may cause material adjustment
to the carrying value of those assets and liabilities. The unquoted Equity
Assets are valued on a periodic basis using techniques including a market
multiple approach, costs approach and/or income approach. The valuation
process is collaborative, involving the finance and investment functions of
the Group with the final valuations being reviewed by the Valuation Committee,
which is a management-level Committee responsible for the oversight of the
valuation of investments. The techniques used include earnings multiples,
discounted cash flow analysis, the value of recent transactions and the net
asset value of the investment. The valuations often reflect a synthesis of a
number of different approaches in determining the final fair value estimate.
The individual approach for each investment will vary depending on relevant
factors that a market participant would take into account in pricing the
asset. These might include the specific industry dynamics, the Investee's
stage of development, profitability, growth prospects or risk as well as the
rights associated with the particular security.
Increases or decreases in any of the inputs in isolation may result in higher
or lower fair value measurements. Changes in fair value of all investments
held at fair value, which includes Equity Assets are recognised in the
Consolidated Statement of Comprehensive Income. On disposal, realised gains
and losses are also recognised in the Consolidated Statement of Comprehensive
Income. Transaction costs are included within gains or losses on investments
held at fair value, although any related interest income, dividend income and
finance costs are disclosed separately in the financial statements.
Impairment assessment for Goodwill
Goodwill is assessed for indicators of impairment at each reporting date and
whenever there is an indication that the recoverable amount of a
cash-generating unit ("CGU") is less than its carrying amount, and tested for
impairment annually. For the impairment test, goodwill is allocated to the CGU
or groups of CGUs which benefit from the synergies of the acquisition and
which represent the lowest level at which goodwill is monitored for internal
management purposes.
The recoverable amount of CGUs is determined based on higher of value-in-use
and fair value less cost to sell. Key assumptions in the discounted cash flow
projections are prepared based on current economic conditions and comprise an
estimated long-term growth rate, the period over which future cashflows have
been forecast, the weighted average cost of capital and estimated operating
margins. Wherever possible, the inputs into the discounted cash flow
projections used for the impairment test of goodwill are based on third party
observable data.
Carried interest
Carried interest represents unrealised and realised shares of fund profits
from holdings in carried interest partnerships where the Group receives
variable returns as an incentive for management of the underlying funds. The
realised amount is the amount actually received. For the unrealised
performance, the amount recognised is determined against an assessment of the
underlying investor returns exceeding an agreed threshold or hurdle, and is
either accounted for under IFRS 9 (for carried interest partnerships acquired
as part of the Combination) or under IFRS 15 (for non-acquired).
Movements in fair value, and amounts accrued as revenue under IFRS 15, are
shown in the 'Carried interest and performance fee income' line on the
Consolidated Statement of Comprehensive Income, with the outstanding balance
shown in the 'Carried interest' line on the Consolidated Statement of
Financial Position.
Carried interest income is only recognised under IFRS 15 provided it has been
determined as being highly probable that there will not be a significant
reversal. The value of carried interest, under this method, has been modelled
by assessing the value of the assets in the fund as well as the terms of the
carried interest arrangements that the Group is a beneficiary of. The value of
the assets have been discounted to ensure that it is highly probable that
there will not be a significant reversal.
Carried interest at fair value is modelled by estimating from the value of the
funds' investments and the amount that would be due to the Group under the
terms of the carried interest arrangements if the assets were realised at
these values. Carried interest includes an embedded option where carried
interest holders participate in gains but not losses of the fund subject to
certain hurdles. The value of this option has been modelled using a variety of
techniques, including the Black Scholes option valuation model and scenario
analysis.
Sensitivity analysis has been performed on carried interest valuations in Note
9.
Judgements
The critical judgements relate to the consolidation of Group companies, the
consolidation of fund investments and the accounting for carried interest
partnerships.
Consolidation of Group companies
Determining whether the Group has control of an entity is generally
straightforward when based on ownership of the majority of the voting capital.
However, in certain instances, this determination will involve significant
judgement, particularly in the case of structured entities where voting rights
are often not the determining factor in decisions over the relevant
activities. This judgement may involve assessing the purpose and design of the
entity. It will also often be necessary to consider whether the Group, or
another involved party with power over the relevant activities, is acting as a
principal in its own right or as an agent on behalf of others.
Consolidation of fund investments
It was assessed throughout the period whether the Group should consolidate
investments in funds managed or advised by the Group into the results of the
Group. Control is determined by the extent of which 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 the
amount of the investor's returns.
The Group has assessed the legal nature of the relationships between the
Group, the relevant fund, the General Partners and the Limited Partners. This
assessment included carrying out a control assessment of each LP in accordance
with IFRS 10 to consider whether the LPs should be consolidated into the
financial statements of the Group. The Group has determined that control over
the LPs ultimately resides with the underlying fund majority investors and
that the Group, through the Asset Manager, acts as an agent to the underlying
fund major investors and not as principal. The Group also determined that as
the manager, the Group has the power to influence the returns generated by the
fund, but the Group's interests typically represent only a small proportion of
the total capital within each fund. The Group has therefore concluded that the
Group acts as an agent, which is primarily engaged to act on behalf, and for
the benefit, of the LPs rather than to act for its own benefit.
Accounting for carried interest partnerships
Carried interest represents unrealised and realised shares of fund profits
from holdings in carried interest partnerships where the Group receives
variable returns as an incentive for management of the underlying funds. The
amount is determined by the level of accumulated profits exceeding an agreed
threshold or hurdle. The rights are in the form of partnership interests in
carried interest partnerships. The Group has between 1 and 25 per cent of the
total interests in these partnerships.
The Group has undertaken a control assessment of each carried interest
partnership in accordance with IFRS 10 to consider whether they should be
consolidated into the Group's results. The Group has considered the nature of
the relationships between the Group, the fund, the fund investors, the carried
interest partnership and participants in the carried interest partnership. The
Group has determined that the power to control the carried interest
partnerships ultimately resides with the fund investors and that the Group is
therefore an agent and not a principal. This is because the purpose and design
of the carried interest partnerships and the carry rights in the fund are
determined at the outset by each fund's Limited Partner Agreement ("LPA"),
which requires investor agreement and reflects investor expectations to
incentivise individuals to enhance performance of the underlying fund. While
the Group has some power over the carried interest partnerships, these powers
are limited and represent the best interests of all carried interest holders
collectively and hence, these are assessed to be on behalf of the fund
investors.
The Group has assessed the payments and the returns the carried interest
holders make and receive from their investment in carried interest and have
considered whether those carried interest holders, who are also employees of
the Group, were providing a service for the benefit of the Group or the
investors in the fund. The Group concluded that the carried interest
represents a separate relationship between the fund investors and the
individual employees and that the carried interest represents an investment
requiring the individuals to put their own capital at risk and that, after an
initial vesting period, continued rights to returns from the investment is not
dictated by continuation of employment.
In addition, the Group has also considered the variability of returns for all
carried interest partnerships and in doing so have determined that the Group
is exposed to variable returns in the range of 1 to 25 per cent as at 30 June
2024, with the main beneficiaries of the carried interest partnership variable
returns being the other participants. The Group concluded that the carried
interest partnership are not controlled by the Group and therefore should not
be consolidated.
The Group has also assessed whether the Group has significant influence over
the carried interest partnerships under IAS 28, Investments in Associates and
Joint Ventures. Where the Group has a share of 20 per cent or more of the
rights to the carried interest, the Group is considered to have significant
influence and therefore these carried interest partnerships are treated as an
associate.
4. Acquisition of Pollen Street Limited
On 24 January 2024, Pollen Street Group Limited was introduced as the new
parent of Pollen Street Limited by way of a scheme of arrangement (the
"Scheme"). Pollen Street Limited subsequently distributed the entire issued
share capital in Pollen Street Capital Holdings Limited to Pollen Street Group
Limited (the "Distribution", and together with the Scheme the
"Reorganisation") on 14 February 2024.
Pollen Street Group Limited now has two wholly owned subsidiaries with a clear
and operationally useful distinction between the businesses carried on by the
Investment Company and the Asset Manager.
The Reorganisation does not change the operational activities of the overall
business from a shareholder's perspective.
The Company controls Pollen Street Limited and Pollen Street Capital Holdings
Limited with both entities being consolidated from 1 January 2023 under the
book-value method. This method applies retrospectively, meaning that the
interim financial statements are restated as if the Reorganisation had
occurred at the beginning of the earliest period presented. The assets and
liabilities of the combining entities are recognised at their carrying amounts
in the interim financial statements. No adjustments are made to reflect fair
values or recognise any new assets or liabilities, except where necessary to
align accounting policies.
The Group expensed £0.1 million of costs associated with the acquisition of
Pollen Street Limited. The costs associated with the issuance of shares of
£4.7 million were presented in Share Premium in the Consolidated Statement of
Financial Position and Consolidated Statement of Changes in Shareholders'
Funds.
The following table shows the value of the consideration, the purchase price
allocation and the goodwill:
Pollen Street Limited
acquisition on 24 January 2024
£'000
Consideration 571,269
Purchase price allocation
Net asset value 571,269
Intangibles -
Subsidiary value 571,269
Goodwill -
The goodwill recognised on the distribution of Pollen Street Capital Holdings
Limited on 14 February 2024 is made up of one cash-generating unit, which
includes future management and performance fees.
Consideration
The consideration for the acquisition of Pollen Street Limited was in the form
of issuance of shares in Pollen Street Group Limited to the shareholders of
Pollen Street Limited. The gross amount was £571.3 million. The number of
shares issued on the acquisition date on 24 January 2024 was 64,209,595.
Subsidiary net asset value
The following table shows the breakdown of the Net Asset Value of Pollen
Street Limited as at 24 January 2024:
Pollen Street Limited
as at 24 January 2024
£'000
Credit Asset at amortised cost 432,941
Investment Asset held at fair value through profit or loss 88,551
Investments in subsidiaries 239,026
Cash and cash equivalents 21,594
Receivables 6,310
Derivative assets held at fair value through profit or loss 429
Payables and current tax payable (14,393)
Interest bearing borrowings (203,189)
Net asset value 571,269
Cash and cash equivalents
The cash and cash equivalents represents the value of the cash held at this
date.
Receivables
The fair value of the receivables acquired were equal to the gross contractual
amounts receivable. The main receivables consist of trade and other debtor
balances, prepayments and accrued income. Receivable balances were represented
by fees receivable for prepayments, investment fund management and advisory
services. This includes investors in funds that are managed and advised by the
Group; as such, detailed and up-to-date information on the financial position
and outlook of its counterparties is available.
Credit assets at amortised cost
The Credit Assets at amortised cost represents the value of the credit assets
at amortised cost.
Investment assets held at fair value through profit or loss
The Investments held at FVTPL include Equity Assets, Credit Assets and
investments in Pollen Street managed Private Equity and Private Credit funds.
Carried interest
Carried interest comprises the share of the profits of managed third-party
funds. The carried interest participations are defined and agreed with the LPs
in each Fund's LPA. The exact measurement for the carried interest in
different funds can differ, such as containing different hurdle rates and
waterfalls.
Derivative assets held at fair value through profit or loss
The derivative asset held at fair value through profit or loss are formed of
open foreign exchange forward contracts to hedge foreign exchange movements in
non-GBP assets or liabilities in order to minimise foreign exchange exposure.
Deferred tax
Deferred tax comprises of temporary differences between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes at the reporting date.
Investments in subsidiaries
Investments in subsidiaries represents Pollen Street Limited's investment in
Pollen Street Capital Holdings Limited which is recorded at cost less
provision for impairments.
Creditors and tax payable
The main items of the payables acquired include corporation tax and general
business accruals.
5. Goodwill and intangible assets
The following tables show the goodwill and intangible assets held by the Group
for their respective periods:
Group For the period ended For the year ended
30 June 2024 31 December 2023
Goodwill Intangibles Total Goodwill Intangibles Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost
Opening balance 227,191 4,000 231,191 227,191 4,000 231,191
Closing balance 227,191 4,000 231,191 227,191 4,000 231,191
Amortisation
Opening balance - (800) (800) - (160) (160)
Amortisation - (320) (320) - (640) (640)
Closing balance - (1,120) (1,120) - (800) (800)
Net book value 227,191 2,880 230,071 227,191 3,200 230,391
6. Operating segments
The Group has two operating segments: the Asset Manager segment and the
Investment Company segment.
The Asset Manager segment is the activities of the Group that provide
investment management and investment advisory services to a range of funds
under management within Private Equity and Credit strategies. The primary
revenue streams for the Asset Manager segment consist of management fees,
performance fees and carried interest. Fund management services are also
provided to the Investment Company segment, however fees from these services
are eliminated from the Group consolidated financial statements. Fund
Management EBITDA in the Strategic Report is equivalent to the operating
profit of the Asset Manager segment adjusted for the depreciation of the lease
asset.
The Investment Company segment holds the Investment Assets of the Group. The
primary revenue stream for this segment is interest income and fair value
gains on the Investment Asset portfolio. The operating profit of the
Investment Company segment is referred to as the Income on Net Investment
Assets in the Strategic Report.
The following tables show the consolidated operating segments profit and loss
movements for their respective periods:
For the period ended 30 June 2024
Group Investment Company Asset Manager Central Group
£'000 £'000 £'000 £'000
Management fee income - 21,180 (2,407) 18,773
Carried interest and performance fee income - 5,575 (1,761) 3,814
Interest income on Credit Assets held at amortised cost 24,223 - - 24,223
Gains on Investment Assets held at fair value(( 5 (#_ftn5) )) 7,530 - - 7,530
Total income 31,753 26,755 (4,168) 54,340
Credit impairment release (1,152) - - (1,152)
Third-party servicing costs (499) - - (499)
Net operating income 30,102 26,755 (4,168) 52,689
Administration costs (5,313) (18,311) 4,045 (19,579)
Finance costs (8,951) (94) - (9,045)
Operating profit 15,838 8,350 (123) 24,065
Depreciation - (555) - (555)
Amortisation - - (320) (320)
Profit before tax 15,838 7,795 (443) 23,190
For the period ended 30 June 2023
Group Investment Company Asset Manager Central Group
£'000 £'000 £'000 £'000
Management fee income - 16,176 (2,988) 13,188
Carried interest and performance fee income - 5,512 (1,741) 3,771
Interest income on Credit Assets held at amortised cost 29,089 - - 29,089
Gains on Investment Assets held at fair value(( 6 (#_ftn6) )) 2,630 - - 2,630
Total income 31,719 21,688 (4,729) 48,678
Credit impairment release 289 - - 289
Third-party servicing costs (1,070) - - (1,070)
Net operating income 30,938 21,688 (4,729) 47,897
Administration costs (5,555) (15,795) 3,041 (18,309)
Finance costs (10,025) (127) - (10,152)
Operating profit 15,358 5,766 (1,688) 19,436
Depreciation - (680) - (680)
Amortisation - - (320) (320)
Profit before tax 15,358 5,086 (2,008) 18,436
7. Employees
The following tables show the average monthly number of employees and the
Directors during the period.
Group For the period ended 30 June 2024 For the period ended 30 June 2023
Average number of staff
Directors 7 7
Professional staff 84 81
Total 91 88
The following table shows the total staff costs for the period. This includes
the five Non-Executive Directors of Pollen Street Group Limited (30 June 2023:
five). The total number of employees and directors as at the reporting date
was 91 (30 June 2023: 88).
Group For the period ended 30 June 2024 For the period ended 30 June 2023
Staff costs £'000 £'000
Wages and salaries 12,254 12,314
Social security costs 1,759 1,598
Defined contribution pension cost 115 86
Other staff costs 206 276
Total(( 7 (#_ftn7) )) 14,334 14,274
8. Investment Assets at Fair Value Through Profit or Loss
a) Investment Assets at Fair Value through profit or loss
The following table shows the total Investment Assets at fair value through
profit or loss of the Group, which includes Equity Assets and Credit Assets.
For the period ended For the year ended
30 June 2024 31 December 2023
Group Equity Assets Credit Assets Total Equity Assets Credit Assets Total
£'000 £'000 £'000 £'000 £'000 £'000
Opening balance 26,839 61,381 88,220 16,449 48,057 64,506
Additions at cost 7,509 2,351 9,860 10,390 33,837 44,227
Realisations at cost (7) (2,695) (2,702) - (22,935) (22,935)
Gains through profit or loss 4,811 2,690 7,501 - 5,659 5,659
Realised gains through profit or loss - (368) (368) - (2,747) (2,747)
Foreign exchange revaluation - 94 94 - (490) (490)
Closing balance 39,152 63,453 102,605 26,839 61,381 88,220
Comprising:
Valued using an earnings multiple 14,300 11,097 25,397 1,566 11,090 12,656
Valued using a TNAV multiple 24,852 52,356 77,208 25,273 50,291 75,564
Closing balance 39,152 63,453 102,605 26,839 61,381 88,220
b) Assets and liabilities not carried at fair value but for which fair
value is disclosed
For the Group as at 30 June 2024:
Group As Presented Fair Value
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000 £'000
Assets
Investments at amortised cost 327,592 - - 357,131 357,131
Receivables 25,116 - 25,116 - 25,116
Cash and cash equivalents 29,726 29,726 - - 29,726
Total assets 382,434 29,726 25,116 357,131 411,973
Liabilities
Payables (18,688) - (18,688) - (18,688)
Interest-bearing borrowings (129,798) - (129,798) - (129,798)
Total liabilities (148,486) - (148,486) - (148,486)
For the Group as at 31 December 2023:
Group As Presented Fair Value
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000 £'000
Assets
Investments at amortised cost 444,490 - - 475,484 475,484
Receivables 17,942 - 17,942 - 17,942
Cash and cash equivalents 19,746 19,746 - - 19,746
Total assets 482,178 19,746 17,942 475,484 513,172
Liabilities
Payables (19,149) - (19,149) - (19,149)
Interest-bearing borrowings (210,764) - (210,764) - (210,764)
Total liabilities (229,913) - (229,913) - (229,913)
Note 11 provides further details of the loans at amortised cost held by the
Group.
The fair value of the receivable and payable balances approximates their
carrying amounts due to the short-term nature of the balances.
9. Carried interest assets
The following table shows the total value of the carried interest held by the
Group, which includes both the carried interest at fair value through profit
or loss and the carried interest receivable:
Group As at 30 June 2024 As at 31 December 2023
£'000 £'000
Carried interest at fair value 19,781 15,967
Carried interest receivable 1,365 1,365
Closing balance 21,146 17,332
Carried interest assets at fair value through profit or loss
a) Movements during the period
Group For the period ended 30 June 2024 For the year ended
31 December 2023
£'000 £'000
Opening balance 15,967 6,495
Gains through profit or loss 3,814 10,672
Realised proceeds - (1,200)
Closing balance 19,781 15,967
Gains through profit or loss are presented in the 'Carried interest and
performance fee income' line on the consolidated statement of comprehensive
income.
b) Fair value classification of carried interest at fair value through
profit or loss
Carried Interest at fair value through profit or loss is classified as a level
3 asset with a value as at 30 June 2024 of £19.8 million (31 December 2023:
£16.0 million). There were no movements between the fair value hierarchies
during the year (31 December 2023: no movements).
c) Sensitivity analysis of carried interest at fair value through
profit or loss
The table below is the sensitivity impact on the inputs applied to the carried
interest assets at FVTPL. The sensitivity parameters are considered reasonable
assumptions in the movement in inputs:
Valuation Parameter As at 30 June 2024 As at 31 December 2023
Sensitivity applied Increase Decrease Increase Decrease
£'000 £'000 £'000 £'000
Fund NAV +/- 10% 4,580 (5,651) 4,450 (4,349)
Option volatility +/- 10% 1,516 (844) 1,302 (716)
Option time to maturity +/- 1 Year 1,764 (1,982) 1,532 (1,714)
Option risk free rate +/- 1% 545 (543) 477 (475)
Carried interest receivable
Movements during the period
Group As at 30 June 2024 As at 31 December 2023
£'000 £'000
Opening balance 1,365 557
Gains through profit or loss - 808
Closing balance 1,365 1,365
10. Interest Bearing Borrowings
The table below sets out a breakdown of the Group's interest-bearing
borrowings.
Group As at 30 June 2024 As at 31 December 2023
£'000
£'000
Current liabilities
Credit facility 39,881 132,493
Interest and commitment fees payable 646 437
Prepaid interest and commitment fees (600) (192)
Total current liabilities 39,927 132,738
Non-Current liabilities
Credit facility 91,809 78,026
Prepaid interest and commitment fees (1,938) -
Total non-current liabilities 89,871 78,026
Total interest-bearing borrowings 129,798 210,764
The table below shows the related debt costs incurred by the Group during the
period:
Group For the period ended For the period ended
30 June 2024 30 June 2023
£'000
£'000
Interest and commitment fees payable 8,951 9,234
Other finance charges 94 791
Total finance costs 9,045 10,025
The table below shows the movements in interest-bearing borrowings of the
Group:
Group As at 30 June 2024 As at 31 December 2023
£'000
£'000
Opening balance 210,764 263,633
Drawdown of interest-bearing borrowings 97,000 37,000
Repayments of interest-bearing borrowing (175,829) (91,094)
Origination and legal fees (2,500) -
Finance costs 8,951 20,360
Interest paid on financing activities (8,588) (19,135)
Closing balance 129,798 210,764
The tables below analyse the Group's financial liabilities into relevant
maturity groupings.
As at 30 June 2024
Group < 1 year 1 - 5 years More than 5 years Total
£'000
£'000
£'000 £'000
Credit facility 39,881 85,000 6,809 131,690
Interest and commitment fees payable 646 - - 646
Prepaid fees (600) (1,938) - (2,538)
Total exposure 39,927 83,062 6,809 129,798
As at 31 December 2023
Group < 1 year 1 - 5 years More than 5 years Total
£'000
£'000
£'000 £'000
Credit facility 132,493 74,912 3,114 210,519
Interest and commitment fees payable 245 - - 245
Total exposure 132,738 74,912 3,114 210,764
11. Credit assets at Amortised Cost
(a) Credit Assets at amortised cost
The allowance for ECL movement during the year was an increase of £1.1
million (2023: release of £1.0 million).
The following table presents the gross carrying value of financial instruments
to which the impairment requirements in IFRS 9 are applied and the associated
allowance for ECL provision. See Note 2 for more detail on the allowance for
ECL.
As at 30 June 2024 As at 31 December 2023
Group Gross Carrying Amount Allowance for ECL Net Carrying Amount Gross Carrying Amount Allowance for ECL Net Carrying Amount
£'000 £'000 £'000 £'000 £'000 £'000
Credit Assets at amortised cost
Stage 1 308,127 (682) 307,445 411,491 (693) 410,798
Stage 2 3,452 (511) 2,941 21,527 (576) 20,951
Stage 3 25,476 (8,270) 17,206 19,783 (7,042) 12,741
Total Assets 337,055 (9,463) 327,592 452,801 (8,311) 444,490
The following table analyses ECL by staging for the Group:
For the period ended 30 June 2024
Group Stage 1 Stage 2 Stage 3 Total
£'000
£'000
£'000
£'000
As at 1 January 2024 693 576 7,042 8,311
Movement from stage 1 to stage 2 (1) 102 - 101
Movement from stage 1 to stage 3 - - 1,457 1,457
Movement from stage 2 to stage 1 1 (75) - (74)
Movement from stage 2 to stage 3 - (101) 163 62
Movement from stage 3 to stage 1 - - (38) (38)
Movement from stage 3 to stage 2 - 31 (67) (36)
Movements within stage 5 (13) (188) (196)
Decreases due to repayments - (24) (89) (113)
Increases due to origination - - - -
Remeasurements due to modelling (16) 15 (10) (11)
Allowance for ECL as at 30 June 2024 682 511 8,270 9,463
For the year ended 31 December 2023
Group Stage 1 Stage 2 Stage 3 Total
£'000
£'000
£'000
£'000
As at 1 January 2023 1,013 678 7,590 9,281
Movement from stage 1 to stage 2 (75) 235 - 160
Movement from stage 1 to stage 3 (202) - 468 266
Movement from stage 2 to stage 1 2 (150) - (148)
Movement from stage 2 to stage 3 - (156) 335 179
Movement from stage 3 to stage 1 - - (124) (124)
Movement from stage 3 to stage 2 - 60 (150) (90)
Decreases due to repayments - (24) (274) (298)
Remeasurements due to modelling (45) (67) (803) (915)
Allowance for ECL as at 31 December 2023 693 576 7,042 8,311
(b) Expected Credit Loss allowance for IFRS 9
Under the IFRS 9 expected credit loss model, impairment provisions are driven
by changes in credit risk of instruments, with a provision for lifetime
expected credit losses recognised where the risk of default of an instrument
has increased significantly since initial recognition.
The following table analyses Group loans by stage:
For the period ended For the year ended
30 June 2024 31 December 2023
Group £'000 £'000
As at 1 January 8,311 9,281
Release for period - Stage 1 (11) (300)
Release for period - Stage 2 (64) (21)
Charge / (release) for period - Stage 3 1,227 (649)
Charge / (release) for period - total 1,152 (970)
Loans sold & write-offs - -
Allowance for ECL 9,463 8,311
12. Corporation tax
The tax credit for the Group for the period was £0.4 million (H1 2023: £1.0
million charge).
Group For the period ended For the period ended
30 June 2024 30 June 2023
£'000 £'000
Current tax expense
UK corporation tax charge for the period 1,503 781
Prior year adjustment (97) -
Total current tax 1,406 781
Deferred tax expense
Origination and reversal of timing differences 1,121 170
Relief from losses previously unrecognised 2,490 -
Recognition of losses previously unrecognised (5,496) -
Prior year adjustment 98 26
Total deferred tax (1,787) 196
Total tax (credit) / charge (381) 977
Factors affecting taxation charge for the year
For the period ended 30 June 2024 For the period ended
£'000 30 June 2023
£'000
Profit before taxation 23,190 18,436
Profit before taxation multiplied by the blended rate of UK Corporation tax 5,798 4,056
(25.0%) (2023: 22.0%)
Effects of:
Dividends not chargeable to UK corporation tax (92) (286)
Interest distributions paid - (3,326)
Income not taxable for tax purposes (733) -
Origination and reversal of timing differences (3,975) 209
Relief from losses previously unrecognised (1,521) -
Group relief surrendered 66 -
Expenses not deductible for tax purposes 158 147
Prior year adjustment 1 26
Changes in tax rate for deferred tax (76) 168
Fixed asset differences - 2
Other income not taxable (7) (19)
Total tax (credit) / charge (381) 977
Following the Reorganisation that occurred on 24 January 2024, Pollen Street
Limited ceased to be classified as an investment trust under Section 1158 of
the Corporation Tax Act 2010. As such Pollen Street Limited now incurs
corporation tax but is also able to recognise a deferred tax asset in respect
of unused tax losses. The origination of the deferred tax asset in the current
period has resulted in a tax credit.
The following table shows the deferred tax asset and liability for the period:
For the period ended For the year ended
30 June 2024 31 December 2023
Group Deferred tax asset Deferred tax liability Total Deferred tax asset Deferred tax liability Total
£'000 £'000 £'000 £'000 £'000 £'000
Opening balance - (2,628) (2,628) - (94) (94)
Prior year adjustment - (98) (98) - (26) (26)
Credit / (charge) to profit or loss 2,774 (889) 1,885 - (2,508) (2,508)
Closing balance 2,774 (3,615) (841) - (2,628) (2,628)
13. Leases
The Group leases include office premises where the Group is a tenant which
include fixed periodic rental payments over the fixed lease terms of no more
than five years remaining from the reporting date. The total cash outflow
during the period in relation to leases was £0.7 million (H1 2023: £0.7
million).
Set out below are the carrying amounts of lease assets recognised and the
movements during the year.
Group - Lease assets For the period ended For the year ended
30 June 2024 31 December 2023
£'000 £'000
Cost
Opening balance 4,873 5,042
Lease maturity - (169)
Closing balance 4,873 4,873
Accumulated depreciation
Opening balance (1,056) (266)
Depreciation expense (422) (959)
Lease maturity - 169
Closing balance (1,478) (1,056)
Net book value 3,395 3,817
Set out below are the carrying amounts of lease liabilities and the movements
during the year.
Group - Lease liabilities For the period ended For the year ended
30 June 2024 31 December 2023
£'000 £'000
Opening balance 4,152 5,268
Accretion of interest 95 229
Payments (680) (1,345)
Closing balance 3,567 4,152
14. Earnings per share
The table below shows the Group's earnings per share for the period ended 30
June 2024:
For the period ended For the period ended
Group 30 June 2024 30 June 2023
Profit after tax (£'000) 23,571 17,459
Average number of shares 63,909 64,209
Earnings per ordinary share 36.9 pence 27.2 pence
15. Receivables
The table below sets out a breakdown of the Group receivables:
Group As at 30 June 2024 As at 31 December 2023
£'000
£'000
Management and performance fees 8,750 6,496
Amounts due from debtors 10,503 4,555
Prepayments and other receivables 5,863 6,891
Closing balance 25,116 17,942
16. Payables
The table below set out a breakdown of the Group payables:
Group As at 30 June 2024 As at 31 December 2023
£'000
£'000
Staff salaries and bonuses 9,813 12,935
Audit fee accruals 641 1,059
Deferred income 24 22
Other payables 8,210 5,133
Total payables 18,688 19,149
17. Ordinary dividends
The following table shows the dividends in relation to or paid during the
period ended 30 June 2024 and year ended 31 December 2023.
Payment Date Amount per Share Total
£'000
(pence per share)
Interim dividend for the period to 31 December 2022 31 March 2023 16.00p 7,916
Interim dividend for the period to 31 March 2023 30 June 2023 16.00p 7,916
Interim dividend for the period to 30 June 2023 29 September 2023 16.00p 7,916
Interim dividend for the period to 30 September 2023 29 December 2023 16.00p 7,916
Interim dividend for the period to 31 December 2023 1 March 2024 13.00p 8,347
Interim dividend for the period to 30 June 2024 11 October 2024 26.50p 16,522
The 30 June 2024 interim dividend of 26.50 pence was approved on 3 September
2024 and will be paid on 11 October 2024.
The following table show the total dividends declared and the total dividends
paid:
For the period ended 30 June 2024 For the period ended 30 June 2023
£'000 £'000
Total dividend paid in period 8,347 15,832
Total dividend in relation to period 16,522 15,832
18. Derivatives
The table below presents the movement in the undiscounted notional values of
the foreign exchange forward contracts for the Group:
For the period ended For the year ended
30 June 2024 31 December 2023
Group EUR USD EUR USD
£'000 £'000 £'000 £'000
Opening notional balance 42,987 19,360 45,560 19,683
Movement in notional value 939 11,279 (2,573) (323)
Closing notional balance 43,926 30,639 42,987 19,360
The table below presents the mark to market of the foreign exchange forward
contracts as at the end of the period for the Group:
For the period ended For the year ended
30 June 2024 31 December 2023
Group EUR USD Total EUR USD Total
£'000 £'000 £'000 £'000 £'000 £'000
Opening balance (191) 12 (179) (839) (77) (916)
Fair value movement 531 (287) 244 648 89 737
Closing balance 340 (275) 65 (191) 12 (179)
Fair value classification of derivatives
The Group derivatives are classified as level 2 in the fair value hierarchy
with a GBP equivalent value of £0.1 million (30 June 2023: (£0.2) million).
There were no movements between the fair value hierarchies during the period.
The derivatives are valued using market forward rates and are contracts with a
third party and so they are not traded on an exchange.
19. Ordinary Share Capital
The table below shows the movement in shares during the period:
No. Issued, allocated and fully paid For the period ended For the year ended
ordinary shares of £0.01 each 30 June 2024 31 December 2023
Opening number of shares 64,209,597 64,209,597
Number of shares bought back (1,473,135) -
Closing number of shares 62,736,462 64,209,597
Shares in issue at Buyback of Shares in issue at
Ordinary Shares
30 June 2024
1 January 2024
Ordinary shares 64,209,597 (1,473,135) 62,736,462
Treasury shares - 1,473,135 1,473,135
20. Other reserves
As at 30 June 2024, the Group had a retained earnings reserve balance of
£22.8 million (31 December 2023: £8.1 million).
The Foreign Currency Translation Reserve reflects the foreign exchange
differences arising on translation that are recognised in the Consolidated
Statement of Comprehensive Income.
21. Contingent Liabilities and Capital Commitments
As at 30 June 2024, there were no contingent liabilities for the Group (31
December 2023: £nil). The capital commitments are set out below.
The Group had £6.5 million (31 December 2023: £6.3 million) of undrawn
committed structured credit facilities, undrawn commitments in relation to
secured real estate loans of £49.3 million (31 December 2023: £35.6 million)
and undrawn commitments in relation to direct Pollen Street managed fund
investments of £96.1 million (31 December 2023: £35.9 million).
The Group Credit Assets at fair value through profit or loss include
investments made into two Private Credit funds that are managed or advised by
the Group: PSC Credit III (A) SCSp and (B) SCSp ("Credit III") and PSC Credit
IV (B) SCSp, and PSC Credit (T) SCSp, a European SMA. As at 30 June 2024, the
Group held 12% of Credit III (31 December 2023: 12%), 1% of PSC Credit (T)
SCSp (31 December 2023: 1%) and 24.7% of PSC Credit IV (B) SCSp (31 December
2023: 0%). As at 30 June 2024, the undrawn commitment for the investment into
Credit III was £2.3 million (31 December 2023: £4.7 million), £0.8 million
(31 December 2023: £0.8 million) for the investment in PSC Credit (T) SCSp
and £70.0 million for the investment in PSC Credit IV (B) SCSp (31 December
2023: £0.0 million).
The Group Equity Assets at fair value through profit or loss includes
commitments in two Private Equity funds that are managed or advised by the
Group: PSC Accelerator II (A) LP and PSC V (A) LP. As at 30 June 2024, the
Group held 2% of PSC Accelerator II (A) LP's total commitments (31 December
2023: 2%) and 5% of the total commitments in PSC V (A) LP (31 December 2023:
5%). As at 30 June 2024, the undrawn commitment into PSC Accelerator II (A)
was £2.9 million (31 December 2023: £10.4 million) and £20.0 million in PSC
V (A) LP (31 December 2023: £20.0 million). On 26 July 2024, the Group
increased its commitment in PSC V (A) LP by £22.0 million to take the total
commitment to £42.0 million.
22. Related Party Transactions
IAS 24 'Related Party Disclosures' requires the disclosure of the details of
material transactions between the Group and any related parties. Accordingly,
the disclosures required are set out below.
The Group considers all transactions with companies that are controlled by
funds managed by the Group as related party transactions.
The Group holds 4.0% equity in Tandem Money Limited a portfolio company of
funds managed by the Group. This is included in Investment Assets at Fair
Value through Profit or Loss in Note 8.
The Group has a servicing agreement with Oplo Group Limited, a wholly owned
subsidiary of Tandem Money Limited. As at 30 June 2024, the portfolio of
mortgages serviced under this agreement was £5.3 million (31 December 2023:
£6.2 million). The Group has an unsecured loan in place with Kingswood Group,
a wealth and investment manager that is controlled by Private Equity funds
managed by the Group. As at 30 June 2024, the facility had an outstanding
balance of £3.0 million (31 December 2023: £0.0 million). The Group has a
facility outstanding to Freedom Finance Limited, a portfolio company managed
by the Group, with a balance of £11.1 million (31 December 2023: £11.1
million). The Group holds two debt instruments issued by Saturn Holdings
Limited, a portfolio company of funds managed by the Group, with an
outstanding balance of £9.0 million (31 December 2023: £9.0 million). The
Group has a participation in debt instruments issued by Soteria Insurance
Limited ("Soteria"), a subsidiary of a portfolio company managed by the Group,
with a balance of £9.0 million (31 December 2023: £9.0 million). Soteria is
also an LP in PSC Credit III (B) SCSp and as a result the Group charges
Soteria management fee and carried interest. These credit instruments are
included in Credit Assets at amortised cost in Note 11.
During the period, the Group made commitments to PSC Credit IV (B) SCSp of
£70.0 million which is a Private Credit fund managed by the Group. On 26 July
2024 the Group increased its commitment in PSC V (A) LP by £22.0 million to
take the total commitment to £42.0 million. Please see Note 21 for analysis
of Group commitments to Pollen Street managed funds and any undrawn amount at
period end.
During the period, the Group carried out foreign exchange transactions with
Lumon Risk Management LTD ("Lumon", formerly Infinity International Limited)
in relation to EUR and USD derivative transactions. Lumon is one of the
Group's panel providers of foreign exchange and all foreign exchange
transactions are carried out on a best execution basis. Lumon is a portfolio
company owned by a Private Equity fund that is managed by the Group. The
derivatives exposure with Lumon is disclosed in Note 18.
During the period, the Company bought back 1,473,135 shares.
23. Ultimate Controlling Party
It is the opinion of the Directors that there is no ultimate controlling
party.
24. Subsequent Events
After 30 June 2024 and by 3 September 2024, the Group bought back 388,469
shares with a total value of £2.8 million. On 3 September 2024 a dividend of
26.5 pence per ordinary share was approved for payment on 11 October 2024. On
26 July 2024 the Group increased its commitment in PSC V (A) LP by £22.0
million to take the total commitment to £42.0 million.
ENDS
1 (#_ftnref1) £4.8 bn AuM as at 31 July 2024
2 (#_ftnref2) EBITDA is calculated as the operating profit of the Group's
Investment Company plus the operating profit of the Group's Asset Manager, in
accordance with IFRS reporting standards, including the full cost of the
office leases despite these costs being reported as depreciation of a
right-of-use asset and financing costs under IFRS 16.
3 (#_ftnref3) BCG's Global Asset Management Report, 2024
https://web-assets.bcg.com/a3/8a/9a5b5365468d8e5db5993160fa2a/2024-gam-report-may-2024-r.pdf
(https://web-assets.bcg.com/a3/8a/9a5b5365468d8e5db5993160fa2a/2024-gam-report-may-2024-r.pdf)
4 (#_ftnref4) The accounting cost of the office lease is defined as the
depreciation of the lease asset
5 (#_ftnref5) The 'Gains on Investment Assets held at fair value' includes
£29k from unrealised foreign exchange gains and realised & unrealised
derivative gains, which are not included in Note 8.
6 (#_ftnref6) The 'Gains on Investment Assets held at fair value' includes
£111k from unrealised foreign exchange losses and realised & unrealised
derivative losses, which are not included in Note 8.
7 (#_ftnref7) For the period ended 30 June 2023, the Central net operating
costs shown in Note 6 Operating segments, contained £1,387k relating to staff
costs. These costs are included in the £14.3 million total Staff costs. For
the period ended 30 June 2024, these costs of £1,039k are included in the
Asset Manager Administrative costs.
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