REG - Record PLC - Interim Results
17/11/2023 07:00
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RNS Number : 7582T Record PLC 17 November 2023
17 November 2023
RECORD PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2023
Record plc ("Record" or "the Company"), the specialist currency and asset
manager, today announces its unaudited results for the six months ended 30
September 2023 ("H1-24").
Financial headlines:
· Management fees increased by 3% to £19.6m (H1-23:
£19.0m)
· Performance fees of £1.5m down 46% versus H1-23
(H1-23: £2.8m)
· Revenue decreased by 3% to £21.5m (H1-23: £22.1m)
· Profit before tax decreased by 16% to £6.3m (H1-23:
£7.5m)
· Interim dividend increased by 5% to 2.15 pence per
share (H1-23: 2.05 pence per share)
· Decrease in operating profit margin to 29% (H1-23: 34%)
· Basic EPS decreased by 24% to 2.48 pence (H1-23: 3.27
pence)
· AUME in USD terms of $84.5bn (H1-23: $80.8bn, FY-23:
$87.7bn)
· Strong financial position with shareholders' equity of
£28.5m (H1-23: £28.0m)
Key developments:
· Currency Management - strong performance evidenced by
continued growth in underlying management fees, and performance fees earned of
£1.5 million
· Asset Management - further progress made in
diversification, highlighted by the launch of two funds in the period, with a
further fund launch anticipated in the second half of FY-24
· Record Digital - suite of Luxembourg funds under
development and continued exploration of new ideas in the digital asset space
· Leslie Hill, CEO, announces retirement with effect from
end of financial year (FY-24)
· Board announces appointment of Dr Jan Witte as CEO
Elect with effect from 1 January 2024
Commenting on the results, Leslie Hill, Chief Executive Officer of Record plc, said:
"We continue to make steady progress along the three strands of our business
strategy, with important milestones reached in our diversification and
succession plans, including the announcement of my retirement with effect from
31 March 2024 and the appointment of Jan Witte as my successor.
"Our client proposition remains strong as does our pipeline of tangible
opportunities across our broad product suite. Our growth in financial terms is
not linear and delays in new product launches alongside stubbornly high
inflation have led to a decrease in our operating margin for the period.
However, looking ahead, we anticipate further fund launches and growth across
our range of products which we expect to increase our profitability over the
medium term.
"The Group remains well positioned financially, with increased cash generation
and a strong balance sheet to support its future growth plans. The Board
remains confident in the delivery of market expectations for the current
financial year. I believe the business remains capable of delivering on the
targets set out in February, albeit achieving them may take longer than
originally anticipated."
Analyst presentation
There will be a presentation for analysts at 9.30am today held via a Zoom
call. Please contact the team at Buchanan via record@buchanan.uk.com for
further details. A copy of the presentation will be made available on the
Group's website at www.recordfg.com.
For further information, please contact:
Record
plc
+44 (0) 1753 852222
David Morrison - Chairman
Leslie Hill - Chief Executive Officer
Steve Cullen - Chief Financial Officer
Buchanan
+44 (0) 20 7466 5000
Simon
Compton
record@buchanan.uk.com
Henry Wilson
George Beale
Chief Executive Officer's statement
The Group continues to make steady steps forward in the triple objective of diversification, modernisation and succession planning. Whilst we are marginally below the targets we had set ourselves for the half year, this is due largely to timing differences associated with fund launches taking longer than expected. Nonetheless, none of the delays are due to changes in client appetite or commitment, rather they have been caused by the speed with which we have been able to set up and launch our structures.
Diversification
We continued to successfully diversify the business across our currency
management, asset management and digital products and service offerings over
the period.
Record Currency Management Limited ("RCML")
At RCML we maintain good performance across our currency strategies, evidenced
by £1.5 million of performance fees earned in the year to date and the
continued high performance of our EMSF Fund. For the latter, we are dedicating
more resource in the coming months in anticipation of adding assets given the
excellent track record and the upcoming three year anniversary of the Fund. We
are continuing to see new pension fund and asset management hedging clients
coming on board - this part of our business represents the stable bedrock from
which our other forthcoming projects can launch.
Record Asset Management GmbH ("RAM")
At RAM, we are excited by the upcoming launch of our first Infrastructure Fund
on which we serve as General Partner ("GP") for a group of long established
European clients. This Fund will begin to generate long-term revenue as each
individual infrastructure project is funded, and is a very welcome evolution
for us as a business. The quality of these earnings will complement the fees
we already earn. We have also launched two other funds in the last six months,
a Protected Equity Fund which launched with USD 215 million and the GP Stakes
Fund with USD 5 million, both of which attract higher fees than we can achieve
in the world of currency management and both of which are expected to grow
materially over time.
Record Digital Asset Ventures Ltd ("RDAV")
At RDAV, we are launching our Luxembourg-based digital asset fund structure in
partnership with Dair Capital. The structure aims to deliver an
institutionally recognised operation, so clients can take investment risk in
this new asset class without unnecessary operational risk. We plan to launch
three funds, designed and managed by Darren Dineen the CEO of Dair Capital who
brings his experience and track record to develop this business for
institutional investors in partnership with us. We are working very closely
with the fund ecosystem and aim to make his Five Seasons fund the first
regulated crypto-currency fund in Luxembourg, attracting not only the Ultra
High Net Worth clients Darren has worked with in the past, but also some new
institutional monies, which Record hopes to help bring in.
Succession planning
As I pass the CEO baton on to Jan Witte, our 'home grown' new CEO Elect, I am
proud of the impressive team of professionals we have recruited over the past
four years and we continue to add to this team. We will announce some new
hires in the near future to boost the "bench" and help us deliver the new
products and services we have been planning for over a year now.
Modernisation
We continue to pass milestones such as building new reporting capabilities and
moving more activities to cloud-based solutions, and as we do we find new
opportunities to improve our technology on an ongoing basis. It is definitely
a journey as opposed to a destination, but one where we challenge ourselves to
be selective and results focussed, and to get value for our spend. This has
been and is at the core of keeping up with other offerings and most of all
listening to our clients and their requests.
Financial performance and dividends
We continue along our growth path albeit progress has, and will continue to
be, non-linear in financial terms. As stated above, the pipeline remains
strong across all business units, although profitability has been somewhat
tempered by timing issues with delays in new product launches, plus continued
high inflationary pressure on costs. It is pleasing to note the more regular
contribution to revenue seen from performance fees although, as always, this
remains potentially episodic and always subject to market conditions.
In terms of revenue, it is pleasing to note the continued growth in underlying
management fees of 3% in the period to £19.6 million (H1-23: £19.0 million).
Performance fees of £1.5 million (H1-23: £2.8 million) continue to be a
welcome addition to total revenue, albeit more episodic and volatile in
nature. Going forward, we anticipate continued revenue growth from both our
traditional currency hedging business alongside that from the new product
launches in both RAM and RDAV.
In light of this, and in line with the company's progressive dividend policy,
the Board has decided to pay an increased interim dividend for HY-24 of 2.15
pence per share (HY-23: 2.05 pence per share) on 22 December 2023, to
shareholders on the register at 1 December 2023.
Finally, after almost four years at the helm, having delivered a robust
succession plan and a diversified suite of products and services, now feels
the right time for me to plan to step down and pass the reins to Jan and my
fellow board members, who I know will do an excellent job in taking the
business forward.
Leslie Hill
Chief Executive Officer
16 November 2023
Interim management review
Operating review
Our aim is to grow our business through modernisation, investing in new
technology and in diversifying our products and services. New technology
enables us to provide more efficient, safe and scalable products across our
whole product suite, whilst diversification enables us to offer differentiated
and relevant products to suit individual client demand.
The pipeline of tangible opportunities that we see for growing our business
remains strong across all product lines, albeit that the development and
delivery of new asset management products has taken longer than initially
anticipated. In collaboration with our clients and specialist partners' we
launched two new Luxembourg-based funds in the period and anticipate the
launch of further funds before the end of the financial year.
The expansion of our business has led to increased costs, exacerbated by
higher than anticipated inflation over a longer period. Whilst this has
weighed on our operating profitability in the short term, we remain confident
that increased efficiency through modernisation, alongside the launch of
higher margin products and a continued focus on controlling our cost base will
increase our operating margin over the medium term.
Products
The beginning of the reporting period saw elevated market and currency
volatility as the US SVB banking crisis highlighted credit stresses in the
financial system on the back of the Fed's tightening campaign, though swift
policy response remedied market turmoil. Meanwhile a majority of Developed
Markets ("DM") central banks entered into the latter phases of the monetary
policy tightening cycle, with market re-calibrations of peak rates sensitive
to incoming information on core inflationary pressures and persistence of
general labour market resilience, with the aforementioned principal drivers of
currency moves. The risk environment remained relatively mixed throughout the
period given further economic fragilities in the Chinese economy and more
recently US government shutdown risks and energy prices. Pronounced trends
have led to extended valuations, notably USD strength and JPY weakness.
Against this volatile market backdrop, we have seen continued investor
appetite for both risk management programmes as well as those seeking to
harness market movements to generate a return. This appetite has been broad
based across Record's currency strategies, which has coincided with a renewed
internal focus on core products and their fit for specific markets.
Demand for passive hedging was observed across the traditional base comprising
European institutional investors, particularly in Switzerland, as well as in
the asset manager space. Record's Hedging for Asset Managers product is being
extended in scope, incorporating significant enhancements to both reporting
and liquidity management, and attracting interest from large private markets
investment groups which is anticipated to drive asset growth over the coming
year.
Mixed investor sentiment about the future path of the US dollar continues to
drive interest in Dynamic Hedging as investors recognise the opportunity to
add value to portfolios while reducing risk. Existing investors in the
strategy have benefited from gains in the programme despite somewhat range
bound conditions for much of the six-month period.
Record's flagship return-seeking products, Currency Multi-Strategy and
Emerging Markets Sustainable Finance ("EMSF"), both delivered positive returns
over the period. Currency Multi-Strategy continues to attract investor
interest in the search for uncorrelated, unfunded returns to their portfolios,
either as newcomers to currency as an asset class or as seasoned allocators to
the space. Recent EMSF performance has consolidated its lead over asset class
benchmarks and, with a credible track record now established, investors are
starting to take note of the pioneering approach and the industry-leading
returns.
People
Our succession strategy continues to evolve with the announcement of Dr Jan
Witte's appointment to the board with effect from 1 January 2024, and his
subsequent appointment as CEO following Leslie Hill's upcoming retirement on
31 March 2024. Jan was appointed as CEO of the Group's UK-regulated
subsidiary, Record Currency Management Limited ("RCML"), earlier this year,
alongside his existing position as CEO of Record Asset Management GmbH ("RAM")
in Germany. We continue to invest in our people. This means hiring exceptional
people throughout our business and providing opportunities for our talented
colleagues to increase their levels of responsibility, while providing support
in the form of internal and external coaching, learning and personal
development, such as by studying for professional qualifications. This has led
to a number of promotions and internal transfers and also in us welcoming some
talented new colleagues. We also continue to strengthen our partner
relationships to continue to diversify our product offering, our client base
and our activities.
Whilst focus on good cost control remains paramount, a cost of living
allowance of £2,000 was agreed for the year to all staff below Board level,
to be paid in quarterly instalments during the year, to help our employees
with the continued high level of inflation. Following a salary review process
conducted more recently in October, a 3% award was made across the company in
addition to share option awards to key staff to align them with our
longer-term business strategy.
Lastly, as part of our employee engagement strategy, we have been using short
pulse surveys on a range of topics including management, communication, health
and wellbeing, pay and benefits and office location.
Technology
We continue to support flexible working across the business, including remote
working, office-based and hybrid working patterns enabled for all staff.
Remote access systems and security controls have continued to be enhanced as
we deliver greater flexibility and functionality to our staff whilst
maintaining the greatest levels of security and protection.
The continuous improvement and development of our technology stack is critical
to improving how we support clients and deliver our products and services
effectively.
In line with our strategy for modernisation, and as part of our ongoing and
continuous development, Record's Board has maintained an elevated IT-related
budget relative to our historic expenditure. This spending has been assigned
across three core areas: software development to improve functionality and
capability; infrastructure to improve security and resilience; and data
management to provide greater insights and value around our investment
services.
Product investment performance
Currency Management
Hedging
Our hedging products are predominantly systematic in nature. The effectiveness
of each client mandate is assessed regularly and adjustments are made when
necessary in order to respond to changing market conditions or to bring the
risk profile of the hedging mandate in line with the client's risk tolerance.
Passive Hedging
Record has developed an Enhanced Passive Hedging service, which aims to reduce
the cost of hedging by introducing additional flexibility into the
implementation of currency hedges without changing the hedge ratio. While the
investment process is partly systematic, the episodic nature of many
opportunities exploited by the strategy means it requires a higher level of
discretionary oversight than has historically been associated with Passive
Hedging.
After a period of continuous effort from global central banks to combat price
increases by progressing in their interest rate hiking cycles, the last six
months have seen a peak in global inflationary pressures. While the market
anticipated the start of an interest rate cutting cycle across major
currencies, central bankers' emphasis has remained on keeping the interest
rates "higher for longer". The longer end of the yield curve is consequently
experiencing a great degree of volatility. This has caused a further
tightening in the financial conditions and in the FX basis over the course of
the last six months expanding the opportunity set from which the team can
potentially add value. Therefore, performance for the first half of the year
has been strong as the portfolio managers have positioned the portfolio to
take advantage of the current volatile environment. Generally, the portfolios
have been managed with excess durations to their benchmarks.
The table below shows the total value added relative to a fixed-tenor
benchmark for an Enhanced Passive Hedging program for a representative account
(base currency is Swiss francs).
Half-year return Return since inception
Value added relative to a fixed-tenor benchmark 0.05% 0.10% p.a.
Dynamic Hedging
US-based Dynamic Hedging clients experienced appreciation of the US dollar
against developed market currencies over the period. The majority of dollar
strength occurred throughout August and September on the back of hawkish
commentary from Fed chair Powell, notably during the Jackson Symposium, and
further supported by the September FOMC meeting seeing an upwards adjustment
in median dot plot projections for 2024. Dollar strength was also partially
attributable to risk off sentiment, amidst China growth concerns, and rising
US treasury yields.
The Dynamic Hedging programmes responded as expected, with hedge ratios rising
systematically in response to dollar strength. Consequently, hedging returns
for US-based clients were positive, helping to protect against foreign
currency weakness. Conversely, non-US clients experienced losses from hedging;
however, these losses were limited as hedge ratios fell in response to broad
dollar strength, allowing clients to gain from their embedded currency
positions.
Half-year return Return since inception
Value added by Dynamic Hedging programme 1.52% 0.76% p.a.
Currency for Return
Record's Currency for Return suite of products includes both discretionary and
systematic investment styles. The Record EM Sustainable Finance Fund uses a
more discretionary approach, whilst the Currency Multi-Strategy product is a
more systematic offering combining five individual strategies.
Record EM Sustainable Finance Fund
The Record EM Sustainable Finance Fund, launched on 28 June 2021, is a result
of the strategic partnership between Record and UBS Wealth Management. The
Fund aims to improve the flow of development finance, enable local currency
lending, enhance financing projects in illiquid markets and support
macroeconomic stability by currency stabilisation. The strategy targets
positive sustainability outcomes across a multidimensional investment process,
whereby it trades liquid and illiquid EM currencies to absorb currency risk.
It further invests in an underlay of sustainable development bonds issued by
Multilateral Development Banks ("MDBs") and other Development Finance
Institutions ("DFIs") with a strong presence in low and middle-income
economies, alongside an active stakeholder engagement that promotes better
policies and practices among investees and trading counterparties.
The Fund returned 1.27% for the half year to 30 September 2023, outperforming
major EM sovereign debt and currency indices.
The positive return was driven by the outperformance in the currency
positions. This more than offset the negative returns in the bond underlay
driven by higher yields in the US which were unsupportive of the dollar bond
portfolio. Some outperformance on duration versus reference indices was
generated on the back of yields climbing more at the back-end of the US
treasury curve and shorter duration exposure of the fund.
Long EM currency positions returned positively due to continued rate
tightening cycles via EM central banks and positive real rates in view of
achieved disinflationary momentum. Positions in high-yielding Latin American
and European currencies saw the lion's share of gains. Chilean peso was a
notable underperformer in the period due to underwhelming Chinese data given
its strong macro and trade links. The funding of Developed Market currency
short positions also contributed positively in the period due to the weakness
of Japanese yen versus the US dollar.
Half-year return Return since inception
Record EMSF Fund USD Share Class 1.27% 5.98%
JP Morgan GBI EM Global Diversified(1) (0.83%) (13.43%)
1. Source: JP Morgan.
Currency Multi-Strategy
Record's Currency Multi-Strategy product combines a number of diversified
return streams, which include:
· Forward Rate Bias ("FRB", also known as "carry") and
Emerging Market ("EM") strategies which are founded on market risk premia and
as such perform more strongly in "risk on" environments;
· Value and Momentum strategies which are more
behavioural in nature, and as a result are less risk sensitive
· Developed Market Classification ("DMC"), a quantitative
strategy using machine learning techniques to predict short term currency
moves, using high frequency data on carry, momentum, volatility and US dollar
cycle factors
Currency Multi-Strategy returned positively during the period, driven by the
outperformance in the EM, Carry and Momentum strands. EM gains were driven
by long positions in high-yielding Latin American currencies in light of
continued hawkish central bank communications, attractive real rate accruals
and a reduction in political risk premia. Key short positions returned
positively given their sensitivity to the more challenging global risk
environment amidst China growth fragilities and higher US treasury yields,
both traditionally negative for EM FX. The Carry strand outperformed on the
back of continued central bank rate divergence, with short JPY and long USD
exposures the key contributors to outperformance. The low carry (interest
rate) JPY depreciated given the relative accommodative Bank of Japan ("BoJ")
stance whilst attractive yields kept the USD supported during the period.
Momentum returned positively, driven largely by long GBP and CHF positions.
The former appreciated on the back of the upwards adjustment in market rate
expectations as the Bank of England has faced further challenges in addressing
persistent inflationary pressures. CHF also saw strength given the continued
Swiss National Bank campaign to limit inflationary pressures vis-à-vis
engineering FX strength.
Value returned negatively on the back of long JPY and short USD exposures.
Despite moves by the BoJ to increase flexibility around Yield Curve Control
("YCC") in July which has allowed for yields to rise in a constrained manner,
the continued relative easy bias of the BoJ and limited communication on the
end of their negative interest rate policy in tandem with elevated US treasury
yields have all weighed on the JPY. The US dollar was supported by market
recalibration of rates around the Fed's "higher for longer" messaging,
bolstered by a resilient labour market and economic data supporting a soft
landing scenario.
Developed Market Classification ("DMC") performance was flat, with mixed
performance across the portfolio. The CHF, SEK and EUR pairs provided positive
returns, capturing short to medium term trends during the period. The CAD and
NOK pairs had slight positive performance. Negative returns in other pairs
came from a mostly net short USD position, which picked up on some short-term
USD weakening but underperformed in August and September. Overall, the model's
Trend factor was most important in deciding positions during this period, with
the Volatility and Carry factors also contributing.
Half-year return Return since inception Volatility since inception
Record Multi- Strategy Composite(2) 2.88% 1.04% p.a. 3.12% p.a.
2. Record Multi-Strategy Composite return data is since inception in July
2012, showing excess returns data gross of fees in USD base and scaled to a 4%
target volatility.
Scaling
The Currency for Return product group allows clients to select the level of
exposure they desire in their currency programmes in addition to the level of
scaling and/or the volatility target.
It should be emphasised that in this case "scaling" refers to the multiple of
the aggregate notional value of forward contracts in the currency programme
which is limited by the willingness of counterparty banks to take exposure to
the client. The AUME of those mandates where scaling or a volatility target is
selected is represented in Record's AUME at the scaled value of the mandate,
as opposed to the mandate size.
Asset Management
Over the past 18 months, Record's EU-based subsidiaries, Record Asset
Management GmbH ("RAM") and RAM Strategies GmbH ("RAM Strategies"), have
spearheaded the establishment of a Luxembourg collective investment fund
platform. This initiative is now bearing fruit with the first two funds
launched in the period. The first fund to go live (Record Diversified GP
Stakes) specialises in taking minority equity stakes in alternative asset
managers. The second fund (Record Protected Equities) combines an
international equity portfolio with downside tail-risk protection. A third
fund, which focuses on infrastructure assets, is currently in development with
an anticipated launch in the fourth quarter of the current financial year.
In creating these funds, Record has partnered with other specialists of high
calibre with expertise in the specific asset classes. These new offerings
ensure that our clients have access to exciting, non-currency related
investment strategies, as part of our strategy to grow our business through
diversification, with the added benefit of fostering deeper client
relationships.
RAM Strategies, with its background of distributing third-party investment
strategies, has taken the lead in marketing these new funds throughout Europe.
At period end, assets under management on the Luxembourg fund platform were
approximately USD 205 million.
The launch of these funds also marks the signing of RAM's inaugural client.
RAM obtained its BaFin license in 2022 and its appointment marks a major
milestone in its history, having now been engaged to provide investment
management services and share class hedging services to the Funds.
Record Digital
Record Digital was set up as a separate group entity within the Record
Financial Group to track, learn and identify opportunities for future
diversification and growth in this sector to help ensure the sustainability of
the business going forward. We set aside capital (initially £2 million), and
our investments were selected in view of two main objectives, cash-to-cash
potential, and business leverage. We have committed 73% of this capital to a
mix of small direct investments, and investment funds focused on disruptive
technologies, early stage, and digital asset companies. These investments have
helped us establish a network of talent, subject-matter experts, and partners
to work with, evaluate ideas and explore new business opportunities together.
We have been actively incubating these ideas, making connections between this
world and our core competencies, testing out new products, exploring new
strategies and approaches to delivering financial services. As we take these
ideas forward, and move on from incubation towards syndicating these ideas, we
look to build diversifying streams of revenue from new products and services,
at commercial fees, building on and aligned with our core competencies.
We are currently building out a suite of Luxembourg funds which are embedding
the differentiating services, unique functionalities, and capabilities of
market leaders in the digital asset space. For example, Block Scholes Limited
("Block Scholes") will be a service provider to these funds providing data,
analytics, and research to the portfolio managers and risk management
functions. Record first invested in Block Scholes in February 2022, and has
since become a client and a partner to the business as well as our CTO,
Rebecca Venis, serving as a Non-Executive Director. As of October 2023, Record
led and successfully closed the most recent Block Scholes funding round,
securing $3.1 million alongside our co-investors, including InvestCorp, Saison
Capital, CoinSwitch and Dair Capital. We are excited by the opportunities
looking forward, as we syndicate more of these incubated ideas, to build on
our core competencies and establish innovative and sustained diversifying
revenue lines for the business.
AUME development
AUME decreased over the period by 3.6% to $84.5 billion in US dollar terms,
and decreased in sterling terms by 2.6% to £69.2 billion. Total net outflows
for the period were $1.0 billion, compared to HY-23 net inflows of
$8.6 billion, and FY-23 net inflows of $9.1 billion.
The AUME movement over the six-month period is analysed as follows:
AUME movement analysis in the six months to 30 September 2023
$bn
AUME at 1 April 2023 87.7
Net client flows (1.0)
Equity and other market impact (1.9)
Foreign exchange impact and mandate volatility scaling (0.3)
AUME at 30 September 2023 84.5
Product mix
The product mix has remained broadly consistent with that reported at the year
end.
AUME composition by product
30 Sep 23 30 Sep 22 31 Mar23
$bn % $bn % $bn %
Passive Hedging 60.5 72 62.2 77 63.8 73
Dynamic Hedging 14.5 17 10.0 12 14.7 17
Currency for Return 3.9 5 4.3 6 3.9 4
Multi-product 5.3 6 4.2 5 5.2 6
Cash and futures/other 0.3 - 0.1 - 0.1 -
Total 84.5 100 80.8 100 87.7 100
Equity and other market performance
Record's AUME is affected by movements in equity and other markets because
Passive and Dynamic Hedging mandates, and some of the Multi-product mandates,
are linked to equity holdings or other asset types such as bonds or real
estate.
Additional details on the composition of assets underlying the Hedging and
Multi-product mandates are provided below to help illustrate more clearly the
impact of equity and fixed income market movements on these mandate sizes.
Class of assets underlying mandates by product as at 30 September 2023
Equity Fixed income Other
% % %
Passive Hedging 23 32 45
Dynamic Hedging 85 - 15
Multi-product - - 100
Forex
Approximately 75% of the Group's AUME is non-US dollar denominated. Therefore,
foreign exchange movements may have an impact on AUME when expressing non-US
dollar AUME in US dollars, although this movement does not have an equivalent
impact on the sterling value of fee income. Exchange rate movements decreased
AUME by $0.3 billion in the period and changes to mandate underlying asset
values decreased AUME by $1.9 billion.
Financial review
Overview
We continue to make progress on the growth and diversification of our
business.
In this respect, it is pleasing to report continued growth in underlying
management fees plus progress made on the delivery of new asset management
products, as evidenced by the launch of two new funds in the period.
Investment in our technology and resources accompanied by sustained
inflationary pressure across our cost base continues to weigh on our operating
margin.
Looking forward, we anticipate a further fund launch for the second half
accompanied by a strong pipeline of opportunities across both currency and
asset management products in addition to tangible progress in our digital
asset project. Consequently, we remain confident in delivering solid and
continuous progress in line with our strategic objectives of growth and
diversification.
Six months ended Six months ended Year ended
30 Sep 23 30 Sep 22 31 Mar 23
Revenue 21.5 22.1 44.7
Cost of Sales (0.1) - -
Gross Profit 21.4 22.1 44.7
Personnel costs (excluding bonus) (7.1) (6.3) (12.8)
Non-Personnel costs (5.3) (4.5) (9.5)
Other income or expense (0.3) - (0.3)
Total expenditure (excluding bonus) (12.7) (10.8) (22.6)
Group Bonus scheme (2.6) (3.8) (7.6)
Operating profit 6.1 7.5 14.5
Operating profit margin 29% 34% 32%
Net interest received 0.2 - 0.1
Profit before tax 6.3 7.5 14.6
Tax (1.6) (1.3) (3.3)
Profit after tax 4.7 6.2 11.3
Revenue
Headline revenue of £21.5 million, including performance fees, represents a
small decrease of 3% from H1-23 (£22.1 million) and a 5% decrease compared to
the second half of last year (H2-23: £22.6 million). Excluding performance
fees, which at £5.8 million were exceptional for FY-23, underlying
management fees increased by 3% versus H1-23 and by 2% against H2-23.
Revenue analysis (£m)
Six months ended Six months ended Year ended
30 Sep 23 30 Sep 22 31 Mar 23
Management fees
Passive Hedging 5.8 6.3 12.9
Dynamic Hedging 7.0 5.8 12.0
Currency for Return 3.1 3.6 6.8
Multi-product 3.7 3.3 6.6
Total management fees 19.6 19.0 38.3
Performance fees 1.5 2.8 5.8
Other income* 0.4 0.3 0.6
Total revenue 21.5 22.1 44.7
*Other income includes distribution fees and fees from ancillary investment
management services.
Following an exceptional year for Performance fees throughout FY-23 (FY-23:
£5.8 million), we continue to see opportunities for earning performance fees
in some of our Passive Hedging mandates including tenor management, albeit at
more normalised levels based on current market conditions. Performance fees of
£1.5 million were earned in the period versus exceptional performance fees
linked to more volatile market movements of £2.8 million and £3.0 million
in the first and second half of FY-23 respectively.
Passive Hedging management fees of £5.8 million were £0.5 million lower than
the equivalent period last year (H1-23: £6.3 million) and £0.8 million lower
compared to the second half of last year (H2-23: £6.6 million), linked mainly
to the net outflows of $1.3 billion seen over the period. As a percentage of
opening AUME, net outflows of $1.3 billion equate to a reduction of
approximately 2%.
Dynamic Hedging management fees increased by 21% to £7.0 million compared to
the same period last year (H1-23: £5.8 million) and by £0.8 million versus
H2-23 (£6.2 million), predominantly driven by the full impact of net inflows
since H1-23 of $2.8 billion.
Currency for Return management fees of £3.1 million decreased by 14% (£0.5
million) compared to H1-23 (H1-23: £3.6 million) and by £0.1 million versus
H2-23 (£3.2 million), predominantly due to the full impact of net outflows
of $0.5 billion since H1-23.
Management fees of £3.7 million from the Multi-product category are £0.4
million higher than both the first and second half of last year (H1-23 and
H2-23: £3.3 million), linked predominantly to the impact from the net inflow
of $0.8 billion in the final quarter of FY-23.
Other income consists of ancillary currency management services, including
collateral management, signal hedging and tactical execution services
totalling £0.2 million (FY-23: £0.5 million), plus fees earned on the
distribution of third-party investment products of £0.2 million (FY-23:
£0.1 million).
Expenditure
Expenditure analysis (£m)
Six months ended Six months ended Year ended
30 Sep 23 30 Sep 22 31 Mar 23
Personnel costs 7.1 6.3 12.8
Non-personnel costs 5.3 4.5 9.5
Administrative expenditure excluding Group Bonus scheme 12.4 10.8 22.3
Group Bonus 2.6 3.8 7.6
Total administrative expenditure 15.0 14.6 29.9
Other income and expenditure 0.3 - 0.3
Total expenditure 15.3 14.6 30.2
Total administrative expenditure (excluding Group Bonus) of £12.4 million for
the period represents an increase of 15% (H1-23: £10.8 million) compared with
the equivalent prior year period, and an increase of 8% versus the second half
of last year (H2-23: £11.5 million).
Personnel costs of £7.1 million (excluding Group Bonus) increased by 13%
versus the same period in the prior year (H1-23: £6.3 million) and by 9%
compared to the second half of last year (H2-23: £6.5 million). We continue
to invest in the business in line with our plans for diversification and
succession and in sourcing the right skill sets at the right level. Personnel
changes lead to occasional one-off reorganisation costs, which we would expect
to decrease as the changes required to resource levels and skill sets begin to
level off. In line with our succession strategy, we remain committed both to
recognising our future talent through internal promotions, and to retention by
utilising our various share schemes, both of which add to our overall
personnel costs. We are supporting our employees during this prolonged period
of high inflation by committing to cost-of-living payments of £2,000 per
employee during FY-24 (paid over four quarters), and have also awarded a
general salary increase of 3%, effective from 1 October 2023, to ensure we
remain both competitive and an attractive potential employer in the current
environment. Whilst we expect pressure on personnel costs to continue in the
short-term, we are confident that the result will not repeat the material
increases seen in the level of our personnel costs in prior periods.
As expected, inflation has also led to an increase in non-personnel costs in
addition to costs linked to our overseas expansion and growth, including
office and travel costs, IT-related support and data costs, and professional
fees including higher UK audit fees and additional audit fees for the new
regulated subsidiary in Germany. Total non-personnel costs of £5.3 million
for the period represent an increase of 18% over the same period last year
(H1-23: £4.5 million) and of 6% versus the second half of FY-23 (H2-23: £5.0
million).
Group Bonus Scheme
The Remuneration Committee operates the Group Bonus scheme to reward and
incentivise employees for the delivery of business growth, having previously
established the range within which the scheme operates at 25% to 35% of
pre-Bonus operating profit.
During the period, pre-Bonus operating profit of £8.7 million reduced by 23%
compared to H1-23 (£11.3 million) and by 19% versus H2-23 (£10.8 million),
and the cost of the Bonus Scheme has decreased by 32% to £2.6 million for the
period (H1 and H2-23: £3.8 million). The decrease reflects both the reduction
in operating profit and the decrease in the percentage used to calculate the
bonus pool. Whilst the Remuneration Committee acknowledged the continued
effort and progress being made in the growth and strategic direction of the
business, in line with its remuneration principles it has reduced the bonus
pool percentage to 30% of pre-Bonus operating profit (H1-23: 33% and FY-23:
34.8%).
Cash flow
The Group generated £7.3 million of cash from operating activities before tax
during the period (H1-23: £6.8 million). Taxation paid during the period
increased to £1.3 million compared to £1.0 million for the same period last
year.
The Group paid dividends totalling £6.0 million in the period (H1-23: £5.2
million), more information for which is given in note 5 to the financial
statements.
Dividends and capital
The Board remains confident that the strategy of modernisation,
diversification and succession continues to be the right direction for the
Group. Consequently, in line with the Board's capital and dividend policies
targeted at sustained and progressive dividend growth, the Group will pay an
increased interim dividend of 2.15 pence per share in respect of the six-month
period (H1-23: 2.05 pence). This will equate to a distribution of £4.3
million (H1-23: £3.9 million), following which the business will retain cash
and money market instruments on the balance sheet, which are significantly in
excess of financial resource requirements required for regulatory purposes.
The Group has no debt and is cash-generative with capital and dividend
policies aimed at ensuring continued balance sheet strength to support future
growth. Shareholders' funds were £28.5 million at 30 September 2023 (H1-23:
£28.0 million).
Principal risks and uncertainties
The principal risks currently facing the Group and those that we anticipate
the Group will be exposed to in the short term remain broadly the same as
those outlined in the Annual Report 2023.
These risks are:
· Strategic - principally concentration risk and
competitive threats, but also risk of failure to deliver strategy, regulatory
trends and exogenous threats (the greatest of which being the global
inflationary and geopolitical environment);
· Operational and systems - primarily trade configuration
and execution, as well as information technology and security and cyber risks;
· Investment risk - we naturally embrace the risk that
our products underperform, while market liquidity is a risk we continually
review; and
· People - key person and talent acquisition and
retention.
Cautionary statement
This Interim Report contains certain forward-looking statements with respect
to the financial condition, results, operations and business of Record. These
statements involve risk and uncertainty because they relate to events and
depend upon circumstances that will occur in the future. There are a number of
factors that could cause actual results or developments to differ materially
from those expressed or implied in this Interim Report. Nothing in this
Interim Report should be construed as a profit forecast.
Statement of Directors' responsibilities
The interim financial report is the responsibility of the Directors, who
confirm that to the best of their knowledge:
· the condensed set of consolidated financial statements
has been prepared in accordance with UK-adopted IAS 34 - "Interim Financial
Reporting"; and
· the Interim management review includes a fair review of
the information required by:
o DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication
of important events that have occurred during the first six months of the
financial year and their impact on the condensed set of consolidated financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
o DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the Annual Report 2023 that could do so.
Related party transactions are disclosed in note 10.
The Directors of Record plc are listed on the Record plc website at:
https://recordfg.com/team-member-groups/record-plc-board/
David Morrison
Chairman
Steve Cullen
Chief Financial Officer
16 November 2023
Independent review report to Record plc
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2023 is not prepared,
in all material respects, in accordance with UK adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2023 which comprises the consolidated statement of comprehensive
income, the consolidated statement of financial position, the consolidated
statement of changes in equity, the consolidated statement of cash flows and
the notes to the financial statements, including a summary of significant
accounting policies
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the Group to
cease to continue as a going concern.
Responsibilities of Directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority and for
no other purpose. No person is entitled to rely on this report unless such a
person is a person entitled to rely upon this report by virtue of and for the
purpose of our terms of engagement or has been expressly authorised to do so
by our prior written consent. Save as above, we do not accept responsibility
for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
16 November 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Consolidated statement of comprehensive income
Six months ended 30 September 2023
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
Note 30 Sep 23 30 Sep 22 31 Mar 23
£'000
£'000
£'000
Revenue 3 21,469 22,059 44,689
Cost of sales (34) (3) (37)
Gross profit 21,435 22,056 44,652
Administrative expenses (15,048) (14,561) (29,888)
Other expense or income (260) 21 (293)
Operating profit 6,127 7,516 14,471
Finance income 153 61 182
Finance expense (19) (33) (55)
Profit before tax 6,261 7,544 14,598
Taxation (1,535) (1,334) (3,259)
Profit after tax 4,726 6,210 11,339
Total comprehensive income for the period 4,726 6,210 11,339
Profit and total comprehensive income for the period attributable to
Owners of the parent 4,726 6,210 11,339
Earnings per share for the period (expressed in pence per share)
Basic earnings per share 4 2.48p 3.27p 5.95p
Diluted earnings per share 4 2.44p 3.16p 5.81p
Consolidated statement of financial position
As at 30 September 2023
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 Sep 23 30 Sep 22 31 Mar 23
Note £'000
£'000
£'000
Non-current assets
Intangible assets 1,643 1,036 1,390
Right-of-use assets 866 1,155 1,011
Property, plant and equipment 286 380 377
Investments 6 4,448 3,606 4,901
Deferred tax assets 178 231 134
Total non-current assets 7,421 6,408 7,813
Current assets
Trade and other receivables 13,097 12,207 14,373
Derivative financial assets 8 - 11 54
Money market instruments with maturities > 3 months 7 - - 4,549
Cash and cash equivalents 7 14,837 17,714 9,948
Total current assets 27,934 29,932 28,924
Total assets 35,355 36,340 36,737
Current liabilities
Trade and other payables (4,628) (5,512) (6,011)
Corporation tax liabilities (1,127) (1,252) (1,329)
Lease liabilities (290) (279) (285)
Derivative financial liabilities 8 (178) (381) (5)
Total current liabilities (6,223) (7,424) (7,630)
Non-current liabilities
Provisions (122) (122) (122)
Lease liabilities (551) (838) (694)
Total non-current liabilities (673) (960) (816)
Total net assets 28,459 27,956 28,291
Equity
Issued share capital 9 50 50 50
Share premium account 1,809 1,809 1,809
Capital redemption reserve 26 26 26
Retained earnings 26,574 26,071 26,406
Equity attributable to owners of the parent 28,459 27,956 28,291
Total equity 28,459 27,956 28,291
Approved by the Board on 16 November 2023 and signed on its behalf by:
David Morrison
Chairman
Steve Cullen
Chief Financial Officer
Consolidated statement of changes in equity
As at 30 September 2023
Unaudited Note Called‑up Share Capital redemption Retained Total
share premium reserve earnings equity
capital account £'000
£'000 £'000 £'000 £'000
As at 1 April 2022 50 1,809 26 24,045 25,930
Profit and total comprehensive income for the period - - - 6,210 6,210
Dividends paid - - - (5,169) (5,169)
Release of shares held by EBT - - - 456 456
Share-based payment reserve movement - - - 529 529
Transactions with shareholders - - - (4,184) (4,184)
As at 30 September 2022 50 1,809 26 26,071 27,956
Profit and total comprehensive income for the period - - - 5,129 5,129
Dividends paid - - - (3,926) (3,926)
Own shares acquired by EBT - - - (3,572) (3,572)
Release of shares held by EBT - - - 1,812 1,812
Tax on share-based payments - - - 300 300
Share-based payment reserve movement - - - 592 592
Transactions with shareholders - - - (4,794) (4,794)
As at 31 March 2023 50 1,809 26 26,406 28,291
Profit and total comprehensive income for the period - - - 4,726 4,726
Dividends paid 5 - - - (5,978) (5,978)
Own shares acquired by EBT - - - (1,018) (1,018)
Release of shares held by EBT - - - 1,987 1,987
Tax on share-based payments - - - 317 317
Share-based payment reserve movement - - - 134 134
Transactions with shareholders - - - (4,558) (4,558)
As at 30 September 2023 50 1,809 26 26,574 28,459
Consolidated statement of cash flows
Six months ended 30 September 2023
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
30 Sep 23 30 Sep 22 31 Mar 23
Note £'000 £'000 £'000
Profit after tax 4,726 6,210 11,339
Adjustments for non-cash movements
Depreciation of right-of-use assets 145 230 375
Depreciation of property, plant and equipment 110 170 285
Amortisation of intangible assets 163 75 135
Loss on asset disposals - 12 11
Share-based payments 559 360 916
(Increase)/decrease in other non-cash movements(1) (10) 98 1,780
Finance income (153) (61) (181)
Finance expense 19 33 55
Tax expense 1,535 1,334 3,259
Working capital changes
Decrease/(increase) in receivables 1,634 (2,324) (4,490)
(Decrease)/increase on payables (1,383) 752 1,290
(Decrease) in provisions - (78) (78)
Cash generated from operations 7,345 6,811 14,696
Corporation tax paid (1,335) (984) (2,433)
Net cash inflow from operating activities 6,010 5,827 12,263
Purchase of intangible software (416) (550) (964)
Purchase of property, plant and equipment (19) (160) (272)
Purchase of investments (29) (1,276) (3,570)
Redemption of bonds 753 859 1,607
Redemption of investments - 881 881
Sale of money market instruments with maturity > 3 months 4,549 13,914 9,363
Interest received 179 61 181
Net cash inflow from investing activities 5,017 13,729 7,226
Lease repayments (139) (174) (315)
Lease interest payments (19) (34) (55)
Purchase of own shares - - (3,572)
Dividends paid to equity shareholders 5 (5,978) (5,169) (9,095)
Cash outflow from financing activities (6,136) (5,377) (13,037)
Net increase in cash and cash equivalents in the period 4,891 14,179 6,452
Effect of exchange rate changes (2) 190 151
Cash and cash equivalents at the beginning of the period 9,948 3,345 3,345
Cash and cash equivalents at the end of the period 14,837 17,714 9,948
Closing cash and cash equivalents consists of:
Cash 7 5,782 17,714 6,405
Cash equivalents 7 9,055 - 3,543
Cash and cash equivalents 7 14,837 17,714 9,948
Other non-cash items include £461k movement in shares held by the Employee
Benefit Trust and other share movements (FY23: £2,473k), netted off against
£228k unrealised loss in derivatives (FY23: £175k gain), £19k foreign
exchange loss (FY23: £147k gains) and £204k unrealised loss on investments
(FY23: £371k gain).
Notes to the consolidated financial statements for the six months ended 30
September 2023
These consolidated financial statements exclude disclosures that are
immaterial and judged to be unnecessary to understand our results and
financial position.
1. Basis of preparation
The condensed set of consolidated financial statements included in this
interim financial report has been prepared in accordance with UK-adopted
International Accounting Standard 34 - "Interim Financial Reporting". The
financial information set out in this Interim Report does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006. The
Group's statutory financial statements for the year ended 31 March 2023 were
prepared in accordance with UK-adopted IFRS and have been delivered to the
Registrar of Companies. The auditor's report on those financial statements was
unqualified and did not contain statements under section 498(2) or section
498(3) of the Companies Act 2006.
The accounting policies for recognition, measurement, consolidation and
presentation as set out in the Group's Annual Report for the year ended 31
March 2023 have been applied in the preparation of the condensed consolidated
half-year financial information.
Application of new standards
There have been no new or amended standards adopted in the financial year
beginning 1 April 2023 which have a material impact on the Group or any
company within the Group.
Impact of the global macro environment during the period
The current global macroeconomic environment continues to provide both
challenge and opportunity for the Group: challenge in the form of managing the
risk of the increased cost of doing business linked to a high inflationary
environment (in the form of employee, energy and supply-chain costs), and
opportunity, for example in the form of increases in interest rate
differentials and clients seeking yield-enhancing strategies. Our focus
continues to be on making the most of such opportunities whilst managing the
balance between careful cost control whilst ensuring the availability of
sufficient and liquid resources to support the growth trajectory of the Group.
Going concern
As part of the Directors' consideration of the appropriateness of adopting the
going concern basis for the preparation of the interim financial statements,
the Directors have assessed whether the Group can meet its obligations as they
fall due and can continue to meet its solvency requirements over a period of
at least twelve months from the approval of this report. The Board has
considered financial projections which demonstrate the ability of the Group to
withstand market shocks in a range of scenarios. In assessing the
appropriateness of the going concern basis, the Board considered base case
liquidity and solvency projections that incorporated an estimated view of
potential macroeconomic volatility, rising inflation and recession.
The projections demonstrated that excess capital would remain in the Group
under the scenarios, and there is cash to run the business in the going
concern period. As a result of the above assessment, the Directors are
satisfied that the Company and the Group have adequate resources with which to
continue to operate for the foreseeable future. In arriving at this
conclusion, the Directors have considered in detail the impact of the current
high inflationary environment on the Group, the market it operates in and its
stakeholders. For this reason the financial statements have been prepared on
the going concern basis.
Consolidation
The accounting policies adopted in these interim financial statements are
identical to those adopted in the Group's most recent annual financial
statements for the year ended 31 March 2023.
The consolidated financial information contained within the financial
statements incorporates financial statements of the Group and entities
controlled by the Group (its subsidiaries) drawn up to 30 September 2023.
Control is achieved where the Company has the power to govern the financial
and operating policies of an entity so as to obtain benefits from its
activities. Where the Company controls an entity, but does not own all the
share capital of that entity, the interests of the other shareholders are
stated within equity as non-controlling interests or within current
liabilities as financial liabilities depending on the characteristic of the
investment, being the proportionate share of the fair value of identifiable
net assets on the date of acquisition plus the share of changes in equity
since the date of consolidation.
An Employee Benefit Trust ("EBT") has been established for the purposes of
satisfying certain share-based awards. The Group has "de facto" control over
this entity. This trust is fully consolidated within the financial statements
(see note 9 for further details).
2. Critical accounting estimates and judgements
The estimates and judgements applied in the interim financial statements are
consistent with those applied in the financial statements for the year ended
31 March 2023.
3. Revenue
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable
for the provision of currency management services. Our revenue typically
arises from charging management fees or performance fees and both are
accounted for in accordance with IFRS 15 - "Revenue from Contracts with
Customers".
Management fees are recorded on a monthly basis as the underlying currency
management service occurs. There are no other performance obligations.
Management fees are calculated as an agreed percentage of the Assets Under
Management Equivalents ("AUME") denominated in the client's chosen base
currency. The percentage varies depending on the nature of services and the
level of AUME. Management fees are typically invoiced to the customer
quarterly with receivables recognised for unpaid invoices.
The Group is entitled to earn performance fees from some clients where the
performance of the clients' mandates exceeds defined benchmarks over a set
time period, and are recognised when the fee amount can be estimated reliably
and it is highly probable that it will not be subject to significant reversal.
Performance fee revenues are not considered to be highly probable until the
end of a contractual performance period and therefore are not recognised until
they crystallise, at which time they are payable by the client and are not
subject to any clawback provisions. There are no other performance obligations
or services provided which suggest these have been earned either before or
after crystallisation date.
a) Revenue from contracts with customers
The following table provides a breakdown of revenue from contracts with
customers, with management fees analysed by product. Other investment services
income includes fees from signal hedging and fiduciary execution.
Revenue by product type Six months ended Six months ended Year ended
30 Sep 23 30 Sep 22 31 Mar 23
£'000 £'000 £'000
Management fees
Passive Hedging 5,837 6,328 12,912
Dynamic Hedging 6,979 5,780 12,013
Currency for Return 3,097 3,544 6,789
Multi-product 3,662 3,308 6,584
Total management fees 19,575 18,960 38,298
Performance fees 1,517 2,833 5,805
Other investment services income 377 266 586
Total revenue 21,469 22,059 44,689
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.
Revenue by geographical region Six months ended Six months ended Year ended
30 Sep 23 30 Sep 22 31 Mar 23
£'000 £'000 £'000
UK 1,269 1,237 2,545
Europe (excluding UK and Switzerland) 7,772 4,764 9,339
US 7,909 7,070 14,179
Switzerland 4,051 8,127 16,985
Other 468 861 1,641
Total revenue 21,469 22,059 44,689
4. Earnings per share
Basic earnings per share is calculated by dividing the profit for the
financial period by the weighted average number of ordinary shares in issue
during the period.
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 period used in the
basic and diluted earnings per share calculations.
Six months ended Six months ended Year ended
30 Sep 23 30 Sep 22 31 Mar 23
Weighted average number of shares used in calculation 190,789,948 189,813,531 190,483,365
Effect of potential dilutive ordinary shares - share options 2,849,607 6,615,565 4,830,186
Weighted average number of shares used in calculation 193,639,555 196,429,096 195,313,551
Basic earnings per share 2.48p 3.27p 5.95p
Diluted earnings per share 2.44p 3.16p 5.81p
The potential dilutive shares relate to the share options, Joint Share
Ownership Plan ("JSOP") and Long Term Incentive Plan ("LTIP") awards granted
in respect of the Group's Share Scheme. At the beginning of the period there
were 14,724,582 Group Share Scheme share awards outstanding. During the
six-month period 3,275,000 share options were granted. During the period
1,915,336 share options were exercised and 601,875 JSOP awards vested. No JSOP
or LTIP awards lapsed in the period. 330,832 share options lapsed in the
period.
As at 30 September 2023, there were 11,589,039 share options in place, 672,500
JSOP and 2,890,000 LTIP awards.
5. Dividends
The dividends paid during the six months ended 30 September 2023 totalled
£5,977,593. The total dividend paid was 3.13 pence per share, being a final
ordinary dividend in respect of the year ended 31 March 2023 of 2.45 pence per
share and a special dividend of 0.68 pence per share. An interim dividend of
2.05 pence per share was also paid for the six months ended 30 September 2022,
thus the full ordinary dividend in respect of the year ended 31 March 2023 was
4.50 pence per share.
The dividends paid during the six months ended 30 September 2022 totalled
£5,169,285. The total dividend paid was 2.72 pence per share, being a final
ordinary dividend in respect of the year ended 31 March 2022 of 1.80 pence per
share and a special dividend of 0.92 pence per share. An interim dividend of
1.80 pence per share was paid in the six months ended 30 September 2021, thus
the full ordinary dividend in respect of the year ended 31 March 2022 was 3.60
pence per share.
The interim dividend declared in respect of the six months ended 30 September
2023 is 2.15 pence per share.
6. Accounting for investments
All investments are measured at fair value through profit or loss.
As at As at As at
30 Sep 23 30 Sep 22 31 Mar 23
£'000 £'000 £'000
Impact bonds - 1,614 770
Investment in funds 3,569 1,782 2,530
Other investments 879 210 1,601
Total investments 4,448 3,606 4,901
7. Cash management
The Group's cash management strategy employs a variety of treasury management
instruments including cash, money market deposits and treasury bills with
maturities of up to one year. We note that not all of these instruments are
classified as cash or cash equivalents under IFRS.
IFRS defines cash and cash equivalents as cash in hand, on demand and
collateral deposits held with banks, and other short-term highly liquid
investments that are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value. Moreover, instruments
can only generally be classified as cash and cash equivalents where they are
held for the purpose of meeting short-term cash commitments rather than for
investment or other purposes.
In the Group's judgement, bank deposits and treasury bills with maturities in
excess of three months do not meet the definition of short-term or highly
liquid and are held for purposes other than meeting short-term commitments. In
accordance with IFRS, these instruments are not categorised as cash or cash
equivalents and are disclosed as money market instruments with maturities
greater than three months.
The table below summarises the instruments managed by the Group as cash, and
their IFRS classification:
Assets managed as cash As at As at As at
30 Sep 23 30 Sep 22 31 Mar 23
£'000 £'000 £'000
Bank deposits with maturities > 3 months - - 4,549
Money market instruments with maturities > 3 months - - 4,549
Cash 5,782 8,214 6,405
Bank deposits with maturities <= 3 months 9,055 9,500 3,543
Cash and cash equivalents 14,837 17,714 9,948
Total assets managed as cash 14,837 17,714 14,497
8. Fair value measurement
The following table presents financial assets and liabilities measured at fair
value in the consolidated statement of financial position in accordance with
the fair value hierarchy based on the significance of inputs used in measuring
their fair value.
The hierarchy has the following levels:
· Level 1: quoted prices (unadjusted) in active markets
for identical assets or liabilities;
· Level 2: inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
· Level 3: inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
The level within which the financial asset or liability is classified is
determined based on the lowest level of input to the fair value measurement.
The financial assets and liabilities measured at fair value in the statement
of financial position are grouped into the fair value hierarchy as follows:
As at 30 September 2023 Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Investment in funds 3,569 1,129 - 2,440
Other investments 879 479 - 400
Financial liabilities at fair value through profit or loss
Forward foreign exchange contracts held to hedge non-sterling-based assets (178) - (178) -
Total 4,270 1,608 (178) 2,840
As at 30 September 2022 Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Impact bonds 1,614 1,614 - -
Investment in funds 1,782 1,146 - 636
Other investments 210 - - 210
Forward foreign exchange contracts to hedge non-sterling assets 11 - 11 -
Financial liabilities at fair value through profit or loss
Forward foreign exchange contracts to hedge non-sterling assets (297) - (297) -
Forward foreign exchange contracts used for hedging (84) - (84) -
Total 3,236 2,760 (370) 846
As at 31 March 2023 Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Impact bonds 770 770 - -
Investment in funds 2,530 1,077 - 1,453
Other investments 1,601 1,001 - 600
Forward foreign exchange contracts to hedge non-sterling assets 54 - 54 -
Financial liabilities at fair value through profit or loss
Forward foreign exchange contracts to hedge non-sterling assets (5) - (5) -
Total 4,950 2,848 49 2,053
There have been no transfers between levels in any of the reported periods.
Basis for classification of financial instruments within the fair value hierarchy
Listed funds and other listed investments are classified as level 1. These
investments are valued using market prices and coupon rates as applicable.
Forward foreign exchange contracts are classified as level 2. The fair value
of forward foreign exchange contracts is established using interpolation of
observable market data rather than a quoted price.
Direct investments in private funds and share capital of start-up companies in
the digital sector have been classified as level 3. There is no observable
market for these investments, therefore fair value measurements have been
derived from valuation techniques that include inputs that are not based on
observable market data. The private funds are valued at net asset value, and
the direct investments in capital of the start-up companies are measured using
the valuation technique that is most suitable to the applicable investment.
These valuation methods are applied in accordance with International Private
Equity and Venture Capital Valuation Guidelines.
Movements in assets and liabilities classified as level 3 during the period were:
Six months ended Six months ended Year ended
30 Sep 23 30 Sep 22 31 Mar 23
£'000 £'000 £'000
At start of period 2,053 326 326
Additions 855 448 1,742
Disposals (200) - -
Net gain or loss 132 72 (15)
At end of period 2,840 846 2,053
9. Called-up share capital
The share capital of Record plc consists only of fully paid ordinary shares
with a par value of 0.025 pence. All shares are equally eligible to receive
dividends and the repayment of capital and represent one vote at the
shareholders' meeting.
Unaudited as at Unaudited as at Audited as at
30 Sep 23 30 Sep 22 31 Mar 23
£'000 Number £'000 Number £'000 Number
Authorised
Ordinary shares of 0.025 pence each 100 400,000,000 100 400,000,000 100 400,000,000
Called up, allotted and fully paid
Ordinary shares of 0.025 pence each 50 199,054,325 50 199,054,325 50 199,054,325
Movement in Record plc shares held by the Record plc Employee Benefit Trust ("EBT")
The EBT was formed to hold shares acquired under the Record plc share-based
compensation plans. Under IFRS the EBT is considered to be under de facto
control of the Group, and has therefore been consolidated into the Group
financial statements.
Neither the purchase nor sale of own shares leads to a gain or loss being
recognised in the Group statement of comprehensive income. Any such gains or
losses are recognised directly in equity.
Number
Record plc shares held by EBT as at 31 March 2022 9,632,031
Net change in holding of own shares by EBT in period (1,495,441)
Record plc shares held by EBT as at 30 September 2022 8,136,590
Net change in holding of own shares by EBT in period 598,412
Record plc shares held by EBT as at 31 March 2023 8,735,002
Net change in holding of own shares by EBT in period (1,580,869)
Record plc shares held by EBT as at 30 September 2023 7,154,133
The EBT holds shares in Record plc which are used to meet the Group's
obligations to employees under the Group Bonus Scheme and the Record plc Share
Scheme. Own shares are recorded at cost and are deducted from retained
earnings.
10. Related parties
Related parties of the Group include key management personnel, close family
members of key management personnel, subsidiaries and the EBT.
On 24 June 2023 a new joint venture, Dair Record Ltd, was incorporated. This
entity is in the early stages of development and, as at 30 September 2023, is
not yet operational. Record's CTO, Rebecca Venis, serves as a Non-Executive
Director on the Board of one of RDAV's investments, Block Scholes Limited,
which constitutes a related party relationship. There have been no other
changes in related parties from those disclosed in the Annual Report 2023.
Transactions or balances between Group entities have been eliminated on
consolidation and, in accordance with IAS 24, are not disclosed in this note.
Key management personnel
The compensation given to key management personnel is as follows:
Six months ended Six months ended Year ended
30 Sep 23 30 Sep 22 31 Mar 23
£'000 £'000 £'000
Short-term employee benefits 5,118 5,061 10,311
Post-employment benefits 144 189 327
Share-based payments 1,422 1,632 3,539
6,684 6,882 14,177
Compensation to key management personnel has increased in line with the
profitability of the Group. It includes variable remuneration paid through the
Group Bonus Scheme as well as inflationary increases and promotions. More
detail of the Group's financial performance is provided in the Financial
Review section.
The dividends paid to key management personnel in the six months ended 30
September 2023 totalled £2,669,149 (six months ended 30 September 2022:
£2,278,904; year ended 31 March 2023: £4,073,511).
11. Post-reporting date events
No adjusting or significant non-adjusting events have occurred between the
reporting date and the date of approval.
Information for shareholders
Record plc
Record plc is a public limited company incorporated in the UK.
Registered in England and Wales
Company No. 1927640
Registered office
Morgan House
Madeira Walk
Windsor
Berkshire
SL4 1EP
United Kingdom
Tel: +44 (0)1753 852 222
Fax: +44 (0)1753 852 224
Principal UK trading subsidiaries
Record Currency Management Limited
Registered in England and Wales
Company No. 1710736
Record Group Services Limited
Registered in England and Wales
Company No. 1927639
Both principal UK trading subsidiaries are based in Windsor.
Further information on Record plc can be found on the Group's website:
www.recordfg.com (http://www.recordfg.com/)
Dates for 2023 interim dividend
Ex-dividend
date
30 November 2023
Record
date
1 December 2023
Interim dividend payment
date 22 December 2023
Registrar
Link Group
10th Floor
Central Square
29 Wellington Street Leeds
LS1 4DL
Further information about the Registrar is available on their website:
www.linkgroup.eu (http://www.linkgroup.eu/)
AUME definition
The basis for measuring AUME differs for each product and is detailed below:
· Passive Hedging mandates - the aggregate nominal amount
of passive hedges actually outstanding in respect of each client;
· Dynamic Hedging mandates - total amount of clients'
investment portfolios denominated in liquid foreign currencies, and hence
capable (under the terms of the relevant mandate) of being hedged;
· Currency for Return mandates - the maximum aggregate
nominal amount of outstanding forward contracts for segregated clients, and
the Net Asset Value of the EMSF for which RCM acts as Investment Manager;
· Multi-product mandates - the chargeable mandate size
for each client; and
· Cash and Futures/other - the total set aside by clients
to cover hedging cash flows and managed by Record, and the initial Net Asset
Value of funds for which RAM acts as Investment Manager
·
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