REG - Record PLC - Final Results <Origin Href="QuoteRef">RECL.L</Origin> - Part 2
17/06/2016 07:06
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maintained in part due to the Currency for Return fees
generated from the tactical bespoke mandate prior to the associated net
outflows occurring in the latter part of the year.
The business continues to focus on the tight control of costs. However, the
decision to increase salaries firm-wide by 10% from May 2015 outside of the
normal salary review round was made to recognise the trend towards higher
fixed remuneration in financial services in order to ensure the business
offers competitive remuneration to attract and retain high calibre employees.
As expected, this contributed the majority of the increase seen in personnel
costs of £0.8m (13%) for the year.
Non-personnel costs were successfully controlled, ending the year marginally
higher at £4.3m (2015: £4.2m), and the Group Profit Share ("GPS") cost
decreased by 6% to £3.0m, reflecting the decrease in underlying operating
profit (excluding GPS).
Compared to the prior year, operating profit margin reduced to 32% (2015: 36%)
mainly as a consequence of the increase in personnel costs, offset marginally
by the reduction to the Group Profit Share cost.
Profit before tax decreased from £7.7m to £6.9m for the year.
Profit and loss (£m) 2016 2015
Revenue 21.1 21.1
Cost of sales (0.2) (0.2)
Gross profit 20.9 20.9
Personnel (excluding Group Profit Share Scheme) (6.8) (6.0)
Non-personnel cost (4.3) (4.2)
Total expenditure (excluding Group Profit Share Scheme) (11.1) (10.2)
Group Profit Share Scheme (3.0) (3.2)
Operating profit 6.8 7.5
Operating profit margin 32% 36%
Net interest received 0.1 0.2
Profit before tax 6.9 7.7
Tax (1.5) (1.7)
Profit after tax 5.4 6.0
Revenue
Record's revenue is principally management fees earned from the provision of
currency management services.
Revenue analysis (£m) 2016 2015
Management fees 20.9 20.3
Performance fees 0.3 0.5
Other income (0.1) 0.3
Total 21.1 21.1
Record charges fees to its clients based upon the AUME of the product
provided. Both Passive and Dynamic Hedging typically have management fee only
arrangements, although some Dynamic Hedging programmes have a performance fee
element. Record has historically offered both management fee only, and
management fee plus performance fee structures on Currency for Return
mandates. Higher performance fee rates usually accompany lower management fee
rates and vice versa.
Management fees and performance fees are normally invoiced on a quarterly
basis, although Record invoices management fees for some of its larger clients
on a monthly basis.
Management fees
Management fee income earned during the year was £20.9m, £0.6m ahead of the
previous year (2015: £20.3m).
The steady growth seen in recent years in Passive Hedging management fees has
continued, with the full-year impact of last year's net inflows increasing
Passive Hedging revenue to £9.4m (2015: £8.1m).
Dynamic Hedging management fees decreased by £1.1m predominantly due to the
loss of the Dynamic Hedging mandate previously announced alongside adjustments
to existing mandates.
The management fees earned from Currency for Return mandates in the year were
bolstered from inflows into the tactical bespoke mandate announced in March
2015, resulting in an increase in Currency for Return management fees to £3.2m
(2015: £2.8m) for the year. Subsequent outflows were announced from this
specific mandate in the second half of the year.
Passive Hedging increased to 45% (2015: 40%) of total management fees.
Dynamic Hedging represents 40% (2015: 46%) and Currency for Return 15% (2015:
14%) of total management fees.
Management fees by product (£m) 2016 2015
Dynamic Hedging 8.3 9.4
Passive Hedging 9.4 8.1
Currency for Return 3.2 2.8
Total 20.9 20.3
Average management fee rates for all product lines have remained broadly
constant throughout the year ended 31 March 2016.
Average management fee rates by product - (bps) 2016 2015
Dynamic Hedging 15 15
Passive Hedging 3 3
Currency for Return 15 16
Average management fee rates for Currency for Return products have marginally
decreased as a result of the effect of the earlier inflows into the bespoke
tactical mandate being on a tiered fee scale, decreasing the overall average
fee rate and prior to the effect of the subsequent outflows.
Performance fees
Performance fees of £0.3m were earned in the year, (2015: £0.5m). Performance
fees can be earned either from Currency for Return or Dynamic Hedging
programmes, dependent on the individual client agreement. Record currently has
two active mandates incorporating a performance fee component, both of which
are Dynamic Hedging mandates.
Other income
Other income is principally from gains made on forward foreign exchange
contracts employed by the funds seeded by the Group and consolidated under
IFRS. It also includes hedging gains/losses on revenues denominated in
currencies other than sterling, and other foreign exchange gains/losses.
Expenditure
Operating expenditure
The total operating expenditure of the Group was £14.1m during the year ended
31 March 2016, an increase of £0.7m or 5% on the prior year. The increase is
due principally to the firm-wide salary increase of 10% implemented on 1 May
2015, in response to the general trend of higher fixed remuneration in the
financial service sector. Non-personnel costs have remained broadly in line
with last year at £4.3m (2015: £4.2m) through careful cost control. The
expectation for the current financial year is of an increase to occupancy
costs arising both from the move of the US office from Atlanta to New York
just prior to 31 March 2016, and the renewal of the Group's office lease
relating to its headquarters in Windsor, both at higher market rentals than
was previously the case (see note 23 to the financial statements for further
detail). The Group Profit Share cost decreased by £0.2m over the prior year
in line with the fall in "underlying" profitability.
Group Profit Share Scheme
The Group operates a Group Profit Share Scheme such that a long-term average
of 30% of operating profit before Group Profit Share ("GPS") is made available
to be awarded to staff. The Remuneration Committee has agreed that for the
year ended 31 March 2016, the Group Profit Share Scheme is 30% of pre-GPS
operating profit. This represents £3.0m, a decrease of £0.2m from the previous
financial year. Directors and senior management in Record are required to take
a proportion of this remuneration in the form of shares which are subject to
lock-up arrangements under the scheme rules.
Under the scheme rules, the intention is to purchase shares in the market
following the announcement of interim and full year financial results.
Operating profit and margins
On a fully consolidated basis, operating profit for the year ended 31 March
2016 of £6.8m was 10% lower than the operating profit for the previous
financial year (2015: £7.5m) and the operating margin was 32% (2015: 36%).
Management also considers operating profit and profit before tax on an
"underlying" basis, which excludes the impact of the income and expenditure
attributable to non-controlling interests (i.e. gains and losses attributable
to other investors in the seed funds which are consolidated into the Group's
financial statements on a line-by-line basis, as required under IFRS). This
reflects the approach used for internal management reporting and is considered
to represent more accurately the core revenues and costs driving current and
future cash flows of the business. Underlying operating profit for the year
was £6.9m (2015: £7.3m) with underlying profit before tax for the year of
£7.0m (2015: £7.5m).
Cash flow
The Group's year end cash position was £21.7m (2015: £12.0m). The cash
generated from operating activities before tax was £7.3m (2015: £8.0m), with
£1.6m paid in taxation (2015: £1.6m) and £3.7m paid in dividends (2015:
£3.3m). At the year end, the Group held money market instruments with
maturities between 3 and 12 months, worth £13.0m (2015: £18.1m). These
instruments are managed as cash by the Group but are not classified as cash
under IFRS rules (see note 16 of the financial statements for more details).
Dividends
Shareholders received an interim ordinary dividend of 0.825p per share paid on
23 December 2015. The Board recommends paying a final ordinary dividend of
0.825p per share, equivalent to £1.8m, taking the overall ordinary dividend to
1.65p per share, in line with the prior year (ordinary dividend paid in
respect of year ended 31 March 2015: 1.65p per share).
Subject to shareholder approval, the dividend will be paid on 3 August 2016 to
shareholders on the register on 1 July 2016, the ex-dividend date being 30
June 2016. The dividend cover in the year was 1.5 (2015: 1.6).
For the current financial year, the Board is considering the return of at
least part of any excess of earnings per share over ordinary dividends to
shareholders, potentially in the form of special dividends - subject to the
financial performance of the Group for the year and the market conditions at
that time.
Financial stability and capital management
The Group's financial position is strong. Consolidated net assets have grown
to £37.7m (2015: £35.8m) at the end of the year represented predominantly by
assets managed as cash totalling £34.7m (2015: £30.1m).
The Board's policy is to retain capital (being equivalent to shareholders'
funds) within the business sufficient to meet continuing obligations, to meet
regulatory capital requirements, to sustain future growth and to provide a
generous buffer against adverse market conditions. To this end, the Group
maintains a financial model to assist it in forecasting future capital
requirements over a three year cycle under various scenarios and monitors the
capital and liquidity positions of the Group on an ongoing and frequent basis.
The Group has no debt.
Record Currency Management Limited ("RCML") is a BIPRU limited licence firm
authorised and regulated in the UK by the Financial Conduct Authority ("FCA"),
and is a wholly owned subsidiary of Record plc. RCML is required to submit
semi-annual capital adequacy returns, and it held significant surplus capital
resources relative to its regulatory financial resource requirement throughout
the year. Similarly the Group also submits semi-annual capital adequacy
returns but on a consolidated basis, taking account of the risks across the
business assessed by the Board as requiring further capital. In assessing
these risks, the Group uses an active risk-based approach to monitoring and
managing risks, which includes its Internal Capital Adequacy Assessment
Process ("ICAAP").
The Board is satisfied that the Group is adequately capitalised both to
continue its operations effectively and to meet regulatory requirements, due
to the size and liquidity of ongoing balance sheet resources maintained by the
Group. Consequently going forward the Board will consider the return of at
least part of any excess of future earnings over ordinary dividends to
shareholders for the current and future periods, subject to the financial
performance of the Group and the market conditions prevailing at the time.
The Group held regulatory capital resources based on the audited financial
statements as at 31 March, as follows:
Regulatory capital resources (£m) 2016 2015
Core Tier 1 capital 33.7 31.9
Deductions: intangible assets (0.3) (0.5)
Regulatory capital resources 33.4 31.4
Further information regarding the Group's capital adequacy information can be
found in the Group's Pillar 3 disclosure, which is available on the Group's
website at www.recordcm.com.
Viability statement
In accordance with provision C.2.2 of the UK Corporate Governance Code, the
Directors have assessed the viability of the Group based on its current
business model, the Group's financial position and strategy, the Board's risk
appetite, and the Group's financial forecasts and its principal risks.
The Board adopts a conservative approach to strategic planning and capital
management, mindful of the need to sustain a strong financial position and to
ensure a robust and liquid balance sheet. This approach has served the
business well over its 33-year history, allowing the Group the capability to
adapt its products and services to changing market conditions through numerous
market cycles. The Group's strategy and principal risks are assessed in the
normal course of business and in Board discussions and regular off-site
meetings as well as regular review by the Executive Committee.
The market and regulatory environment in which the Group operates is
constantly evolving and for this reason the Directors consider it prudent to
consider a three year horizon over which to assess the viability of the Group.
This period is consistent with the Group's approach to preparing its ICAAP,
which uses statistical modelling and robust downside scenarios (stress
testing) to quantify the level of capital required to mitigate the financial
impact on the Group, and on the Group's business model arising from its
principal risks.
The principal risks of the business include operational, business, liquidity,
market and credit risk. The approach to stress testing includes consideration
of a range of factors which may result in AUME outflows for example, a general
market downturn or a large operational risk event.
The Directors have a current, reasonable expectation that the Group will
continue to operate and meet its liabilities as they fall due over the three
year period of their assessment.
Consolidated statement of comprehensive income
Year ended 31 March
2016 2015
Note £'000 £'000
Revenue 3 21,134 21,057
Cost of sales (221) (148)
Gross profit 20,913 20,909
Administrative expenses (14,123) (13,373)
Operating profit 4 6,790 7,536
Finance income 143 146
Profit before tax 6,933 7,682
Taxation 6 (1,523) (1,708)
Profit after tax and total comprehensive income for the year 5,410 5,974
Profit and total comprehensive income for the year attributable to:
Non-controlling interests (131) 192
Owners of the parent 5,541 5,782
Earnings per share for profit attributable to the equity holders of the Group during the year
Basic earnings per share 7 2.55p 2.66p
Diluted earnings per share 7 2.54p 2.65p
Consolidated statement of financial position
As at 31 March
2016 2015
Note £'000 £'000
Non-current assets
Property, plant and equipment 10 81 129
Intangible assets 11 299 504
Investments 12 - 2,567
Deferred tax assets 13 43 73
423 3,273
Current assets
Trade and other receivables 14 5,695 6,324
Derivative financial assets 15 106 619
Money market instruments with maturity > 3 months 16 13,020 18,100
Cash and cash equivalents 16 21,720 12,010
Total current assets 40,541 37,053
Total assets 40,964 40,326
Current liabilities
Trade and other payables 17 (2,372) (2,949)
Corporation tax liabilities 17 (776) (893)
Derivative financial liabilities 15 (108) (680)
Total current liabilities (3,256) (4,522)
Total net assets 37,708 35,804
Equity
Issued share capital 18 55 55
Share premium account 1,899 1,847
Capital redemption reserve 20 20
Retained earnings 31,715 30,006
Equity attributable to owners of the parent 33,689 31,928
Non-controlling interest 20 4,019 3,876
Total equity 37,708 35,804
Consolidated statement of changes in equity
Year ended 31 March 2016
Called up share capital Share premium account Capital redemption reserve Retained earnings Total Attributable to equity holders of the parent Non-controlling interest Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 1 April 2015 55 1,847 20 30,006 31,928 3,876 35,804
Profit and total comprehensive income for the year - - - 5,541 5,541 (131) 5,410
Dividends paid - - - (3,750) (3,750) - (3,750)
Own shares acquired by EBT - - - (1,006) (1,006) - (1,006)
Release of shares held by EBT - 52 - 536 588 - 588
Change in non-controlling interest on initial consolidation of seed fund - - - - - 417 417
Issue of units in funds to non-controlling interests - - - - - (143) (143)
Share-based payment reserve movement - - - 388 388 - 388
Transactions with shareholders - 52 - (3,832) (3,780) 274 (3,506)
As at 31 March 2016 55 1,899 20 31,715 33,689 4,019 37,708
Year ended 31 March 2015
Called up share capital Share premium account Capital redemption reserve Retained earnings Total Attributable to equity holders of the parent Non-controlling interest Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 1 April 2014 55 1,838 20 27,327 29,240 3,667 32,907
Profit and total comprehensive income for the year - - - 5,782 5,782 192 5,974
Dividends paid - - - (3,266) (3,266) - (3,266)
Own shares acquired by EBT - - - (318) (318) - (318)
Release of shares held by EBT - 9 - 314 323 - 323
Issue of units in funds to non-controlling interests - - - - - 17 17
Share-based payment reserve movement - - - 167 167 - 167
Transactions with shareholders - 9 - (3,103) (3,094) 17 (3,077)
As at 31 March 2015 55 1,847 20 30,006 31,928 3,876 35,804
Consolidated statement of cash flows
Year ended 31 March
2016 2015
Note £'000 £'000
Net cash inflow from operating activities 24 5,509 6,335
Cash flow from investing activities
Purchase of intangible software (39) -
Purchase of property, plant and equipment (29) (128)
Sale of securities 1,462 186
Sale / (purchase) of money market instruments with maturity > 3 months 5,079 (2,612)
Increase in cash as a result of consolidating FTSE FRB10 Index Fund 1,968 -
Interest received 165 141
Net cash inflow / (outflow) from investing activities 8,606 (2,413)
Cash flow from financing activities
Cash flow from (redemption) / issue of units in funds (143) 17
Exercise of share options - 15
Purchase of own shares (794) (318)
Dividends paid to equity shareholders 8 (3,750) (3,266)
Cash outflow from financing activities (4,687) (3,552)
Net increase in cash and cash equivalents in the year 9,428 370
Effect of exchange rate changes 282 137
Cash and cash equivalents at the beginning of the year 12,010 11,503
Cash and cash equivalents at the end of the year 21,720 12,010
Closing cash and cash equivalents consists of:
Cash 5,439 2,730
Cash equivalents 16,281 9,280
Cash and cash equivalents 16 21,720 12,010
Company statement of financial position
As at 31 March
2016 2015
Note £'000 £'000
Non-current assets
Investments 12 3,666 3,539
3,666 3,539
Current assets
Cash and cash equivalents 16 2 17
Total current assets 2 17
Total assets 3,668 3,556
Current liabilities
Trade and other payables 17 (11) (481)
Total current liabilities (11) (481)
Total net assets 3,657 3,075
Equity
Issued share capital 18 55 55
Share premium account 1,809 1,809
Capital redemption reserve 20 20
Retained earnings 1,773 1,191
Total equity 3,657 3,075
Company statement of changes in equity
Year ended 31 March 2016
Called up share capital Share premium account Capital redemption reserve Retained earnings Total shareholders' equity
£'000 £'000 £'000 £'000 £'000
As at 1 April 2015 55 1,809 20 1,191 3,075
Profit and total comprehensive income for the year - - - 4,092 4,092
Dividends paid - - - (3,750) (3,750)
Share option reserve movement - - - 240 240
Transactions with shareholders - - - (3,510) (3,510)
As at 31 March 2016 55 1,809 20 1,773 3,657
Year ended 31 March 2015
Called up share capital Share premium account Capital redemption reserve Retained earnings Total shareholders' equity
£'000 £'000 £'000 £'000 £'000
As at 1 April 2014 55 1,809 20 1,222 3,106
Profit and total comprehensive income for the year - - - 3,068 3,068
Dividends paid - - - (3,266) (3,266)
Share option reserve movement - - - 167 167
Transactions with shareholders - - - (3,099) (3,099)
As at 31 March 2015 55 1,809 20 1,191 3,075
Company statement of cash flows
Year ended 31 March
2016 2015
Note £'000 £'000
Net cash (outflow)/inflow from operating activities 24 (471) 177
Cash flow from investing activities
Dividends received 4,205 3,070
Interest received 1 2
Net cash inflow from investing activities 4,206 3,072
Cash flow from financing activities
Dividends paid to equity shareholders 8 (3,750) (3,266)
Cash outflow from financing activities (3,750) (3,266)
Net decrease in cash and cash equivalents in the year (15) (17)
Cash and cash equivalents at the beginning of the year 17 34
Cash and cash equivalents at the end of the year 2 17
Closing cash and cash equivalents consists of:
Cash 2 17
Cash equivalents - -
Cash and cash equivalents 2 17
Notes to the financial statements
For the year ended 31 March 2016
These financial statements exclude disclosures that are both immaterial and
judged to be unnecessary to understand our results and financial position.
1. Accounting policies
In order to increase the clarity of the notes to the financial statements,
accounting policy descriptions appear at the beginning of the note to which
they relate, and are shown in italic text.
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out in the notes below. These
policies have been consistently applied to all periods presented unless
otherwise stated.
a. Accounting convention
Basis of preparation
The Group and Company have prepared their financial statements under
International Financial Reporting Standards ("IFRSs") as adopted by the
European Union. IFRSs comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB") and the International
Financial Reporting Interpretations Committee ("IFRIC") as adopted in the
European Union as at 31 March 2016. The financial statements have been
prepared on a historical cost basis, modified to include fair valuation of
derivative financial instruments.
The Directors are satisfied that the Company and the Group have adequate
resources with which to continue to operate for the foreseeable future. For
this reason the financial statements have been prepared on a going concern
basis.
The preparation of financial statements in accordance with the recognition and
measurement principles set out in IFRSs requires management to make
judgements, estimates and assumptions that affect the application of policies
and reported amounts of assets and liabilities, income and expenses. The bases
for management judgements, estimates and assumptions are discussed further in
note 2.
Impact of new accounting standards
A number of amendments to existing standards and interpretations have been
issued, some of which were mandatory for periods beginning 1 April 2015, with
the remaining becoming effective in future periods. The new standards and
amendments to existing standards effective for the year to 31 March 2016 have
not had a material impact on the financial statements of Record plc.
Standard Description Effective date
Annual Improvements to 2012 Cycle (December 2013) 1 February 2015
Annual Improvements 2013 Cycle (December 2013) 1 January 2015
IFRIC Interpretation 21 (issued on 20 May 2013) Levies 17 June 2014
Standards and interpretations not endorsed
Standard Description Effective date (periods commencing on or after 1 January 2015)
Amendment to IAS 16 and IAS 38 (May 2014) Clarification of Acceptable Methods of Depreciation and Amortisation 1 January 2016
Annual improvements 2014 (September 2014) Improvements to: IFRS 5, IFRS 7, IAS 19 and IAS 34 1 January 2016
Amendments to IAS 1 (December 2014) Part of the disclosure initiative aimed at improving financial statement presentation and disclosures 1 January 2016
IFRS 15 (May 2014) Revenue from contracts with customers 1 January 2018
IFRS 9 (July 2014) Financial Instruments 1 January 2018
IFRS 16 (January 2016) Leases 1 January 2019
IFRS 16 "Leases" may have a material impact on the financial statements, as
the Group would have to recognise at the commencement of any future lease for
premises both a "right-of-use" asset which would be depreciated over the lease
period, and a lease liability equal to the present value of future lease
payments. Record's existing lease is accounted for as an operating lease and
therefore is not represented on the statement of financial position (balance
sheet).
No other standards or interpretations issued but not yet effective are
expected to have a material impact on the Group's financial statements.
b. Basis of consolidation
The consolidated financial information contained within the financial
statements incorporates financial statements of the Company and its
subsidiaries drawn up to 31 March 2016. Subsidiaries are entities controlled
by the Company and are included from the date that control commences until the
date that control ceases. Control is achieved where the Company is exposed to
or has rights over variable returns from its involvement with the entity and
it has the power to affect returns. Where the Group controls an entity, but
does not own all the share capital of that entity, the interest of the other
shareholders' non-controlling interests is stated within equity at the
non-controlling interests' proportion of the fair value of the recognised
assets and liabilities.
An Employee Benefit Trust has been established for the purposes of satisfying
certain share-based awards. The Group has "de facto" control over this special
purpose entity. This trust is fully consolidated within the financial
statements.
The Group has investments in three funds. These funds are held by Record plc
and represent seed capital investments by the Group. If the Group is in a
position to be able to control a fund by virtue of holding a majority of units
in the fund, then the fund is consolidated within the Group accounts. We
consider that the Group exerts such control in cases where it (either in
isolation or together with its related parties) holds a majority of units in
the fund. Such funds are consolidated either on a line-by-line basis, or if it
meets the definition of a disposal group held for sale it is classified and
accounted for on that basis. In the case that the Group does not control a
fund for the complete reporting period, then the fund is consolidated only for
the part of the reporting period for which the Group has control over the
entity.
The accounts of subsidiary undertakings, which are prepared using uniform
accounting policies, are coterminous with those of the Company apart from
those of the seeded funds which have accounting reference dates of 30
September. The consolidated financial statements incorporate the financial
performance of the seeded funds in the year ended 31 March 2016 and the
financial position of the seeded funds as at 31 March 2016.
The Company is taking advantage of the exemption under the Companies Act 2006
s408(1) not to present its individual statement of comprehensive income and
related notes that form part of the financial statements. The Group total
comprehensive income for the year includes a profit of £4,091,492 attributable
to the Company (2015: £3,069,187).
All intra-Group transactions, balances, income, expenses and dividends are
eliminated on consolidation.
c. Foreign currencies
The financial statements are presented in sterling (£), which is the
functional currency of the parent company. Foreign currency transactions are
translated into the functional currency of the parent company using the
exchange rates prevailing at the dates of the transactions (spot exchange
rate). Foreign exchange gains and losses resulting from the settlement of such
transactions and from the re-measurement of monetary items at year end
exchange rates are recognised in profit or loss.
d. Financial instruments
Financial assets and financial liabilities are recognised when the Group
becomes a party to the contractual provisions of the financial instrument.
Financial assets are derecognised when the contractual rights to the cash
flows from the financial assets expire, or when the financial asset and all
substantial risks and rewards are transferred. A financial liability is
derecognised when it is extinguished, discharged, cancelled or expires.
e. Impairment of assets
The Group assesses whether there is any indication that any of its assets have
been impaired at least annually. If such an indication exists, the asset's
recoverable amount is estimated and compared to its carrying value.
An impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. Impairment losses are recognised in
profit or loss.
f. Provisions and contingent liabilities
Provisions are recognised when present obligations as a result of a past event
will probably lead to an outflow of economic resources from the Group and
amounts can be estimated reliably. Timing or amount of the outflow may still
be uncertain. A present obligation arises from the presence of a legal or
constructive commitment that has resulted from past events.
Provisions are measured at the estimated expenditure required to settle the
present obligation, based on the most reliable evidence available at the
reporting date, including the risks and uncertainties associated with the
present obligation. Provisions are discounted to their present values, where
the time value of money is material. Any reimbursement that the Group can be
virtually certain to collect from a third party with respect to the obligation
is recognised as a separate asset. However, this asset may not exceed the
amount of the related provision.
All provisions are reviewed at each reporting date and adjusted to reflect the
current best estimate. In those cases where the possible outflow of economic
resources as a result of present obligations is considered improbable or
remote, no liability is recognised.
g. Equity
Share capital represents the nominal (par) value of shares that have been
issued. Share premium includes any premium received on issue of share capital.
Retained earnings includes all current and prior period retained profits and
share-based employee remuneration. All transactions with owners of the parent
are recorded separately within equity.
2. Critical accounting estimates and judgements
The estimates and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates. The
estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
Note 1.b. describes the basis which the Group uses to determine whether it
controls seed funds. Note 19 covers the assumptions made in calculating the
fair value of share options offered by the Group to its employees. The
Directors have judged that the Group does not bear substantially all the risks
and rewards of ownership of its leasehold premises and therefore accounts for
the leases as operating leases as described in note 23.
3. Revenue
Revenue recognition
Revenue is recognised in profit or loss when the amount of revenue can be
measured reliably, it is probable that economic benefits will flow to the
entity, the stage of completion can be measured reliably, and the costs
incurred and costs to complete the transaction can be measured reliably also.
Management fees are accrued on a daily basis, typically based upon an agreed
percentage of the assets under management equivalents ("AUME") denominated in
the client's chosen base currency. The Group is entitled to earn performance
fees from some clients where the performance of the clients' mandates exceeds
defined benchmarks by an agreed level of outperformance over a set time
period. Performance fees are recognised at the end of each contractual
performance period as this is the first point at which the fee amount can be
estimated reliably and it is probable that the fee will be received.
Segmental analysis
The Directors, who together are the entity's Chief Operating Decision Maker,
consider that its services comprise one operating segment (being the provision
of currency management services) and that it operates in a market that is not
bound by geographical constraints. The Group provides Directors with revenue
information disaggregated by product, whilst operating costs, assets and
liabilities are presented on an aggregated basis. This reflects the unified
basis on which the products are marketed, delivered and supported.
a. Product revenues
The Group has split its currency management revenues by product. Other income
includes gains or losses from foreign exchange conversion, gains or losses on
derivative financial instruments (see note 15), gains or losses on seed
investments that have not been consolidated on a line-by-line basis and fees
from other related services.
2016 2015
Revenue by product type £'000 £'000
Management fees
Dynamic Hedging 8,311 9,376
Passive Hedging 9,438 8,105
Currency for Return 3,192 2,774
Total management fee income 20,941 20,255
Performance fee income - Dynamic Hedging 315 480
Other income (122) 322
Total revenue 21,134 21,057
Other income includes losses attributable to the non-controlling interest's
holding in the funds of £112,274 (2015: gain of £192,360).
b. Geographical analysis
The geographical analysis of revenue is based on the destination i.e. the
location of the client to whom the services are provided. All turnover
originated in the UK.
2016 2015
Revenue by geographical region £'000 £'000
Management and performance fee income
UK 4,501 5,501
US 3,746 3,660
Switzerland 11,939 10,352
Other 1,070 1,222
Total management and performance fee income 21,256 20,735
Other income (122) 322
Total revenue 21,134 21,057
Other income is not analysed by geographical region.
All of the Group's tangible non-current assets are located in the UK.
c. Major clients
During the year ended 31 March 2016, five clients individually accounted for
more than 10% of the Group's revenue. The five largest clients generated
revenues of £2.8m, £2.8m, £2.4m, £2.4m and £2.3m in the year (2015: five
largest clients generated revenues of £3.2m, £2.4m, £2.3m, £2.2m and £2.1m).
4. Operating profit
Operating profit for the year is stated after charging/(crediting):
2016 2015
£'000 £'000
Staff costs 9,693 8,919
Depreciation of property, plant and equipment 77 85
Amortisation of intangibles 244 230
Auditor fees
Fees payable to the Group's auditor for the audit of the Company's annual accounts 45 44
The audit of the Group's subsidiaries, pursuant to legislation 39 42
Other services pursuant to legislation 68 65
Other services relating to taxation 10 10
Operating lease rentals: land and buildings 224 224
Losses on forward FX contracts held to hedge cash flow 315 92
Other exchange gains (298) (701)
5. Staff costs
The average number of employees, including Directors, employed by the Group
during the year was:
2016 2015
Corporate 9 9
Client relationships 12 10
Investment research 10 11
Operations 23 24
Risk management 4 4
Support 11 10
Annual average 69 68
The aggregate costs of the above employees, including Directors, were as
follows:
2016 2015
£'000 £'000
Wages and salaries 6,922 6,489
Social security costs 1,005 871
Pension costs 479 416
Other employment benefit costs 1,287 1,143
Aggregate staff costs 9,693 8,919
Other employment benefit costs include share-based payments, share option
costs, and costs relating to the Record plc Share Incentive Plan.
6. Taxation - Group
Current tax is the tax currently payable based on taxable profit for the year.
Current income tax assets and/or liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
periods, that are unpaid at the reporting date. Current tax is payable on
taxable profit, which differs from profit or loss in the financial statements.
Calculation of current tax is based on tax rates and tax laws that have been
enacted or substantively enacted by the end of the reporting period.
The total charge for the year can be reconciled to the accounting profit as
follows:
2016 2015
£'000 £'000
Profit before taxation 6,933 7,682
Taxation at the standard rate of tax in the UK of 20% (2015: 21%) 1,387 1,613
Tax effects of:
Other disallowable expenses and non-taxable income 15 32
Capital allowances for the period lower than depreciation 26 8
Higher tax rates on subsidiary undertakings 3 -
Adjustments recognised in current year in relation to the current tax of prior years 4 5
Other temporary differences 88 50
Total tax expense 1,523 1,708
The tax expense comprises:
Current tax expense 1,493 1,623
Deferred tax expense 30 85
Total tax expense 1,523 1,708
The standard rate of UK corporation tax for the year is 20% (2015: 21%). A
full corporation tax computation is prepared at the year end. The actual
charge as a percentage of the profit before tax may differ from the underlying
tax rate. Differences typically arise as a result of capital allowances
differing from depreciation charged, and certain types of expenditure not
being deductible for tax purposes, other differences may also arise.
The tax charge for the year ended 31 March 2016 was £1,522,827 (2015:
£1,707,824) which was 22.0% of profit before tax (2015: 22.2%).
7. Earnings per share
Basic earnings per share is calculated by dividing the profit for the
financial year attributable to equity holders of the parent by the weighted
average number of ordinary shares in issue during the year.
Diluted earnings per share is calculated as for the basic earnings per share
with a further adjustment to the weighted average number of ordinary shares to
reflect the effects of all potential dilution.
There is no difference between the profit for the financial year attributable
to equity holders of the parent used in the basic and diluted earnings per
share calculations.
2016 2015
Weighted average number of shares used in calculation of basic earnings per share 217,176,877 217,501,040
Effect of potential dilutive ordinary shares - share options 711,980 892,093
Weighted average number of shares used in calculation of diluted earnings per share 217,888,857 218,393,133
pence pence
Basic earnings per share 2.55 2.66
Diluted earnings per share 2.54 2.65
The potential dilutive shares relate to the share options granted in respect
of the Group's Share Scheme (see note 19). There were share options in place
at the beginning of the period over 9,910,750 shares. During the year 853,750
options were exercised, and a further 90,000 share options lapsed or were
forfeited. The Group granted 4,402,249 share options with a potentially
dilutive effect during the year. Of the 13,369,249 share options in place at
the end of the period, 9,007,253 share options have a dilutive impact at the
year end.
8. Dividends
Interim and special dividends are recognised when paid and final dividends
when approved by shareholders.
The dividends paid by the Group during the year ended 31 March 2016 totalled
£3,749,849 (1.725p per share) which comprised a final dividend in respect of
the year ended 31 March 2015 of £1,962,261 (0.90p per share) and an interim
dividend for the year ended 31 March 2016 of £1,787,588 (0.825p per share).
The dividends paid by the Group during the year ended 31 March 2015 totalled
£3,266,329 (1.50p per share) which comprised a final dividend in respect of
the year ended 31 March 2014 of £1,634,833 (0.75p per share) and an interim
dividend for the year ended 31 March 2015 of £1,631,496 (0.75p per share).
The final dividend proposed in respect of the year ended 31 March 2016 is
0.825p per share.
9. Retirement benefit obligations
The Group operates defined contribution pension plans for the benefit of
employees. The Group makes contributions to independently administered plans,
such contributions being recognised as an expense when they fall due. The
assets of the schemes are held separately from those of the Group in
independently administered funds.
The Group is not exposed to the particular risks associated with the operation
of Defined Benefit plans and has no legal or constructive obligation to make
any further payments to the plans other than the contributions due.
The pension cost charge represents contributions payable by the Group to the
funds and amounted to £479,206 (2015: £416,276).
10. Property, plant and equipment - Group
All property, plant and equipment assets are stated at cost less accumulated
depreciation. Depreciation of property, plant and equipment is provided to
write off the cost, less residual value, on a straight-line basis over the
estimated useful life:
· Leasehold improvements - period from lease commencement to the earlier
of the lease termination date and the next rent review date
· Computer equipment - 2-5 years
· Fixtures and fittings - 4 years
Residual values, remaining useful economic lives and depreciation methods are
reviewed annually and adjusted if appropriate. Gains
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