TIDMPOLR
RNS Number : 8159D
Polar Capital Holdings PLC
26 June 2023
POLAR CAPITAL HOLDINGS plc
Group Audited Results for the year ended 31 March 2023
" During a difficult period for markets, Polar Capital has
demonstrated resilience and improving investment performance. The
Group's strong balance sheet and significant capacity in fund
strategies that are currently benefitting from net inflows,
positions Polar Capital well for the future."
Gavin Rochussen, CEO
Highlights
-- Assets under Management (AuM) at 31 March 2023 down 13% to GBP19.2bn (2022: GBP22.1bn)
-- Average AuM for the year down 14% to GBP19.6bn (2022: GBP22.8bn)
-- Core operating profit down 31% to GBP47.9m (2022: GBP69.4m)
-- Profit before tax down 27% to GBP45.2m (2022: GBP62.1m)
-- Basic earnings per share of 36.8p (2022: 50.8p) and adjusted
diluted total earnings per share down 21% to 44.3p (2022:
56.0p)
-- Second interim dividend of 32.0p per share (2022: 32.0 p)
bringing the total dividend for the year to 46.0p per share (2022:
46.0p). The dividend payment date is 28 July 2023, with an
ex-dividend date of 6 July 2023 and a record date of 7 July
2023.
Polar Capital continues to deliver as a client focused
organisation as shown by the results of the annual Broadridge Fund
Brand 50 Survey, against much larger peers, where in the UK we were
ranked: 7(th) highest brand, 1(st) for Thematic Equity, 2(nd) for
Client Oriented thinking and 3(rd) in Sales and Account
Management.
The non-GAAP alternative performance measures shown here are
described and reconciled to IFRS measures in the Alternative
Performance Measures (APM) section.
Gavin Rochussen, Chief Executive Officer, commented:
" Investment performance, including that of our world class
Technology strategy, has improved over the year notwithstanding the
headwind for growth stocks."
"As at 31 March 2023, 79% of our UCITS funds' AuM were in the
top two quartiles against the Lipper peer group over one year, 65%
in the top two quartiles over three years with 87% and 93% in the
top two quartiles over five years and since inception
respectively."
"It is notable that no less than 88% of our UCITS AuM is in the
first quartile against the Lipper peer group since inception."
"The decline in assets under management and net outflows in the
2023 financial year is considered modest relative to industry wide
outflows."
"On the positive side, the Emerging Market Stars suite of funds
had net inflows in the year of GBP236m and Sustainable Thematic
Equities strategy had inflows of GBP103m."
"There is in excess of GBP23bn of capacity in fund strategies
that are currently benefitting from net inflows".
"Total dividend per share for the year has been maintained at
46.0p."
"Strategic progress has continued under the 'growth with
diversification' mantra with much progress diversifying our
distribution footprint into new regions. The Nordic region has
become a significant market where our funds find favour and we have
opened an office in Singapore to service a growing Asian client
base."
"We have continued to develop our US footprint with experienced
business development capability covering the major regions within
the US. This has resulted in promising net inflows into the US 40
Act Fund and increased interest in our Emerging Markets Stars fund
strategies."
" The Group's strong balance sheet and range of differentiated
fund strategies positions us well for the future, supported by our
performance led approach and our strong culture. "
For further information please contact:
Polar Capital
Gavin Rochussen (Chief Executive
Officer)
Samir Ayub (Finance Director) +44 (0)20 7227 2700
Numis Securities Limited - Nomad
and Joint Broker
Giles Rolls
Charles Farquhar
Stephen Westgate +44 (0)20 7260 1000
Peel Hunt LLP- Joint Broker
Andrew Buchanan +44 (0)20 3597 8680
Camarco
Ed Gascoigne-Pees
Jennifer Renwick
Phoebe Pugh +44 (0)20 3757 4995
----------------------------------- --------------------
Assets under Management (AuM)
AuM split by type
31 March 2023 31 March 2022
----------------------------------- ----------------------------------
GBPbn % GBPbn %
Open ended funds 14.3 75% Open ended funds 16.6 75%
Investment Trusts 3.9 20% Investment Trusts 4.4 20%
Segregated mandates 1.0 5% Segregated mandates 1.1 5%
--------------------- ------ ---- -------------------- ------ ----
Total 19.2 Total 22.1
--------------------- ------ ---- -------------------- ------ ----
AuM split by strategy
Ordered according to launch date
31 March 2023 31 March
2022
-------------------------- ---------------- ------------------------- -------------
GBPbn % GBPbn %
Technology 7.2 38% Technology 9.2 42%
European Long/Short 0.1 0.5% European Long/Short 0.1 0.3%
Healthcare 3.8 20% Healthcare 3.7 17%
Global Insurance 2.1 11% Global Insurance 1.9 9%
Financials 0.5 2% Financials 0.6 3%
Convertibles 0.7 4% Convertibles 0.8 4%
North America 0.6 3% North America 0.8 4%
Japan Value 0.2 1% Japan Value 0.2 0.5%
European Income 0.2 1% European Income 0.1 0.3%
UK Value 1.2 6% UK Value 1.6 7%
Emerging Markets and Emerging Markets and
Asia 1.3 7% Asia 1.1 5%
Phaeacian * - - Phaeacian* 0.5 2%
European Opportunities 1.0 5% European Opportunities 1.2 5%
European Absolute
Return** 0.1 0.5% European Absolute Return 0.1 0.3%
Melchior Global Equity** - - Melchior Global Equity 0.1 0.3%
Sustainable Thematic Sustainable Thematic
Equities 0.2 1% Equities 0.1 0.3%
-------------------------- -------- ------ ------------------------- ------ -----
Total assets 19.2 100% Total assets 22.1 100%
-------------------------- -------- ------ ------------------------- ------ -----
* The Phaeacian Accent International Value Fund and the
Phaeacian Global Value Fund were closed down in May 2022.
** The Melchior European Absolute Return Fund and the Melchior
Global Equity Fund were closed down in May 2023 and December 2022
respectively.
Chair's Statement
Introduction
The year since my last report has, once again, proved to be
eventful and, in its own way, quite extraordinary. It is clear that
calendar year 2022 has been a very difficult year for the global
economy as world stock markets struggled to deal with the fallout
from higher interest rates and rising inflation; as well as the
reality of Russia's invasion of the Ukraine. Gavin Rochussen covers
this impact for investors in his CEO report.
Last year, we also sadly lost the UK's longest serving monarch
with the death of Her Late Majesty, Queen Elizabeth II, just a few
months after celebrating her Diamond Jubilee. She was one of the
most experienced and respected global leaders, and will be missed
by many.
In the UK, investor confidence in the operation of government
and the direction of policy was badly damaged in the turmoil
following the resignation of not one but two Prime Ministers. The
fallout from this was seen very clearly as UK interest rates
climbed steeply. Sterling fell and gilt yields increased, pushing
up government borrowing costs and affecting everything from pension
funds to mortgages, as well as the continuing increased pressure on
high street inflation.
Despite this challenging background, it is encouraging to be
able to report on improved investment performance over the year
against the Lipper peer group, positive investor interest, and
indeed new investment, across a number of our strategies; rewarding
our fund managers for remaining true to their processes and
continuing to focus on producing good risk adjusted returns.
Looking ahead, we are clear on our strategy. We have the support
of a strong balance sheet, and we have the benefit of a talented
executive team working with some of the best investment management
people. We know there will always be new challenges, as well as new
opportunities, for the business. One topical example is the
emergence of Artificial Intelligence and what this might mean for
economies and industry, including the investing industry. And, of
course, we are mindful of the elections in the US and UK in
2024.
Whilst we cannot be certain as to how the future will play out,
we are used to navigating our way through uncertain times and I and
the Board are confident that the outlook for the business remains
positive.
Results
Despite a more stable period for investors at the start of
calendar year 2023, the weakness of markets overall in 2022
together with the loss of AUM following the previously announced
closure of the Phaeacian mutual funds, led to funds under
management at the year end, 31 March 2023, of GBP19.2bn, 13% lower
when compared to GBP22.1bn a year earlier.
The corresponding reduction in revenues led to an overall fall
in core operating profits from GBP69.4m in 2022 to GBP47.9m in
2023, 31% lower over the year, compared to a 35% increase in the
prior year. The resulting profit before tax for the year amounted
to GBP45.2m (2022: GBP62.1m).
Dividend
The effect of the lower profit figure for the year leads
directly to a lower earnings result, and hence diluted EPS of 36.1p
(2022:48.7p) and adjusted diluted total EPS of 44.3p (2022: 56.0p).
Nevertheless, given the strength of our balance sheet and our
confidence in the long term outlook of the Company, the Board
recommend maintaining a second interim dividend per share of 32.0p
(2022: 32.0p) to be paid in July 2023. This, together with the
first interim dividend per share of 14.0p paid in January 2023,
means that the total dividend per share for the year is maintained
at 46.0p (2022: 46.0p).
Board
As announced last year, two of the Company's founders retired
from the Board as part of the succession plans for the Company as
it transitions to a 'post founder' leadership team. Hence, it was
with mixed emotions that we said goodbye to John Mansell and Jamie
Cayzer-Colvin. They have been dedicated servants of the
Company.
The Board meet regularly with Gavin Rochussen and his executive
team and all the Directors have opportunities to provide feedback,
on the workings of the Board, the operation and leadership of the
Company and fulfilment of their own role, formally during the year.
The Directors confirmed they are comfortable with the way in which
their responsibilities are discharged, the operation of the
Company, and with the relationship between the Board and the
executive team of the Company.
Now that we have completed the first full year of operating with
the current Board membership, it is intended to initiate an
external review of Board effectiveness to be carried out by an
independent third party over the coming year.
Strategy
I am pleased to be able to report the continuing progress made
in the year in pursuit of our strategy. We have seen improvements
in investment performance and a pickup in net inflows into some of
the more recently launched mandates following the broadening of our
distribution footprint, and as investor interest increases in our
wider investment offering. It was also encouraging to see the
slowing of outflows from some of the more established strategies,
reflecting improving investor sentiment in the second half of the
year.
Culture
I am particularly proud of the culture at Polar Capital. Time
and again during the year we saw this ably demonstrated as the team
dealt with the inevitable challenges faced by the business, without
compromising the collaborative, inclusive and supportive values
that underpin what it means to work at Polar Capital. Nowhere was
this better illustrated than through the mentoring support provided
to students at Westminster City School, a local academy, by our
staff volunteers. This, together with the broader support offered
by Polar Capital to the students of Westminster City School is a
demonstration of the Polar Capital culture 'in action'.
It is no surprise then that it is our staff who are at the heart
of our business and it is very encouraging to be able to report
that over 91% of them in our most recent survey replied that they
would recommend Polar Capital as a great place to work. We remain
convinced that the alignment of interests between fund managers
delivering long term superior returns, supported by excellent staff
providing great client service, is the best way to deliver a
superior investment experience to our investors.
Notice of Annual General Meeting
We are planning to hold the Company's forthcoming Annual General
Meeting ('AGM') as a physical meeting at 2.00pm on Thursday 28
September 2023 at the Company's registered office.
Shareholders are encouraged to submit any questions to our
company secretary before the meeting (by using
Investorrelations@polarcapital.co.uk, and using the subject title
'PCH AGM') who will arrange for a response to be provided to the
questions. There will not be a presentation at the meeting, but a
video of the CEO and Finance Director presenting the results will
be available on the Company's website ahead of the meeting. The
notice of meeting is also available on the Company's website and
will be sent, along with the Annual Report, to shareholders in due
course.
Thank you
I want to thank Gavin Rochussen and his executive team, our fund
managers, and our staff, for their efforts in another very
challenging year for the industry. Everyone at Polar Capital has
stepped up and performed exceptionally well. On behalf of the Board
and myself, thank you.
David Lamb
Chair
23 June 2023
The non-GAAP alternative performance measures mentioned here are
described and reconciled in the APM section.
Chief Executive's Report
Major events such as wars and pandemics have historically marked
inflexion points in secular economic cycles. The post-World War II
era was marked by strong and sustained period of economic growth
and prosperity, while the 1970s and 1980s were characterised by
rising inflation and economic stagnation. The period from the early
1990s to mid-2000s was marked by the proliferation of new
technologies, while the years following the Global Financial Crisis
saw a prolonged period of economic contraction and slow recovery,
followed by a decade of falling interest rates and monetary easing
that fuelled asset values as risk premia fell. It seems that
Covid-19 and the Ukraine war are likely to mark the latest
inflexion point for markets.
Covid-19 and the sudden stalling of all global economies brought
massive monetary stimulus which ultimately fuelled inflation rising
to a 40-year high with soaring energy costs caused by a dislocation
of energy supply due to geopolitical factors in central Europe.
As a result, the financial year to 31 March 2023 was
characterised by an unprecedented combination of events comprising;
the continuing war in Ukraine, accompanied by the surge in energy
costs and inflation across a broad front of goods and services,
together with unprecedented monetary tightening as Governments
around the world sought to rein in the excess monetary support
provided during Covid-19.
In the US, the Federal Reserve embarked on the steepest
tightening cycle in 40 years as rates were raised by 450bps. In
Europe, the European Central Bank raised rates by 250bps despite
the likelihood of recession ending a decade long experiment with
negative interest rates. Unsurprisingly, markets weakened over the
period with the MSCI All-Country World Index down by 20%, the worst
annual return since 2008. Breaking a six-year run of
outperformance, US equities underperformed the global equity index
by 330bps, the worst relative year since 2005. The year was also
the worst year for combined total returns for equities and bonds
since 1982, and was the worst year since 2000 for growth stocks,
with the Morningstar Growth index underperforming the Morningstar
Value index by 36%.
Technology stocks suffered in 2022 contending with the post
Covid-19 unwind with technology growth stocks suffering the most.
The technology sector had outperformed in each of the eight prior
years taking the technology sector's share of global market
capitalisation from 20% to a peak of 38%. But the sector declined
by 32% in 2022 compared to the overall market decline of 17%.
Similarly, the Dow Jones Industrial Average outperformed the NASDAQ
Composite by more than 24%, the greatest divergence in these
benchmarks since 2000.
More encouragingly, we saw a positive start to 2023 for
equities, as inflationary pressure seemed to be abating, energy
prices declining following a less harsh winter in Europe and peak
interest rates now look to be within sight. But the likelihood of
lower rates was not enough to prevent the collapse of Silicon
Valley Bank in the US and the forced takeover of Credit Suisse by
UBS to avert a systemic banking crisis.
It was against this market backdrop and, particularly given
Polar Capital's large exposure to the technology and related
sectors, that assets under management declined over the financial
year by 13% from GBP22.1bn to GBP19.2bn, although the rate of net
outflows has been declining and in April 2023, we registered net
inflows.
Investment performance has improved over the year
notwithstanding the headwind for growth stocks.
As at 31 March 2023, 79% of our UCITS funds' AuM were in the top
two quartiles against the Lipper peer group over one year, 65% in
the top two quartiles over three years with 87% and 93% in the top
two quartiles over five years and since inception respectively.
It is notable that no less than 88% of our UCITS AuM is in the
first quartile against the Lipper peer group since inception.
Of our 22 funds listed within the Dublin UCITS umbrella 73% were
in the top two quartiles over one year, and 85%, 80% and 96% in the
top two quartiles over three years, five years and since inception
respectively.
The decline in assets under management and net outflows in the
2023 financial year is considered modest relative to industry wide
outflows and the decline in the valuations of technology and
related sector stocks that suffered a material de-rating in the
period. Net redemptions amounted to GBP1.5bn, fund closures were
GBP0.5bn and market decline and performance accounted for GBP0.9bn
of the net GBP2.9bn of reduction in AuM over the period. As a
result, total AuM across the Group declined by 13% from GBP22.1bn
to GBP19.2bn, while the decline in AuM in our three investment
trusts and segregated mandates declined 11% and 9% respectively. It
is notable that in the last quarter of the financial year, AuM
increased by GBP749m representing a 4% increase in the quarter.
While total net outflows from the Technology strategy were
GBP1.2bn, the net outflows in the last quarter were GBP237m. This
net flow profile should be considered in the context of net
outflows of GBP1.3bn from the technology funds in the 2022
financial year and net inflows of GBP1.8bn in the 2021 financial
year, the year that benefited from the so called Covid-19
winners.
The Healthcare team manage seven different strategies within the
healthcare sector and total net flows were neutral, with Polar
Capital Biotechnology Fund and Polar Capital Blue Chip Fund
receiving GBP223m of subscriptions while the other funds had net
redemptions of roughly the same quantum. Polar Capital UK Value
Opportunities Fund and Melchior European Opportunities Fund
suffered net outflows in line with industry wide experience of
GBP265m and GBP172m respectively. As sentiment for UK companies has
improved, we have begun to experience net inflows into the Polar
Capital UK Value Opportunities Fund.
On the positive side, the Emerging Market Stars suite of funds
had net inflows in the year of GBP236m and Sustainable Thematic
Equities strategy had inflows of GBP103m. Notably, as performance
has improved and as sentiment for European companies has become
less bearish, Polar Capital European Income ex-UK Fund has had net
inflows with net inflow momentum building towards the end of the
financial year.
Financial performance for the year was more challenging
following the decline in revenue resulting from lower average AuM
given redemptions and market values declining. Average AuM declined
by 14% resulting in a fall in net management fees of 17% and a 31%
decline in core operating profit . While performance fee profit was
lower than the prior year, share based payments and exceptional
items were lower in 2023 compared to the prior year. As a result,
profit before tax and basic EPS decreased by 27% and 28%
respectively. Adjusted diluted total EPS declined by 21% from 56.0p
to 44.3p. Total dividend per share for the year has been maintained
at 46.0p (2022: 46.0p).
The regulatory environment has continued to evolve for the
financial services sector and for the Group. Polar Capital
continues to navigate a highly regulated environment ranging from
routine regulatory inspections to reporting from existing and new
regulators as the Group expanded its regulatory activities subject
to the Swiss Financial Market Supervisory Authority with the
establishment of a Swiss subsidiary.
The FCA's new Consumer Duty has increased the expectations on UK
authorised financial services firms requiring 'a firm must act to
deliver good outcomes for the retail consumers of its products.'
For new and existing products or services that are open to sale or
renewal, the Duty will come into force on 31 July 2023. For closed
products or services, the Duty will apply from 31 July 2024.
Strategic progress has continued under the 'growth with
diversification' mantra with much progress diversifying our
distribution footprint into new regions. The Nordic region has
become a significant market where our funds find favour. We have
also opened an office in Singapore to service a growing Asian
client base.
Notwithstanding the closure of the Phaeacian strategy, we have
continued to develop our US footprint with experienced business
development capability covering the major regions within the US.
This has resulted in promising net inflows into the US 40 Act Fund
and increased interest in our Emerging Markets Stars fund
strategies.
Sustainability is fundamental to our business, and we are
committed to integrating sustainable practices across the Company.
This includes the way we treat our employees, how we interact with
society and our community, our impact on the environment, and our
duty as responsible stewards of our clients' capital.
This is demonstrated by the internal work of the staff Diversity
& Inclusion Committee on topics such as Mental Health,
participation in industry initiatives such as the staff Diversity
Project and Investment 20/20, and our ongoing partnership and
bursary programme with a local academy to our London offices.
We remain focused on developing our climate change strategy,
which includes implementing the recommendations of the Taskforce on
Climate-related Financial Disclosures (TCFD) across our business
strategy, governance structure and risk management process. In
addition, we are considering what a net zero transition strategy
means to our business, and we have recently joined the
Institutional Investors Group on Climate Change (IIGCC) to help
develop our investment climate strategy.
The outlook is positive with global inflation abating and the
peak interest rate cycle within medium term sight. The Group has 13
specialist sector, thematic and regionally focused teams with
compelling long term track records in actively managed strategies.
We believe that the Group's strong balance sheet and range of
differentiated fund strategies positions us well for the future,
supported by our performance led approach and our strong
culture.
Gavin Rochussen
Chief Executive Officer
23 June 2023
The non-GAAP alternative performance measures mentioned here are
described and reconciled in the APM section.
Business Review
Assets under Management and Fund Flows
Following a record year for the funds industry in calendar year
2021, 2022 proved exceptionally challenging, with growing
uncertainty and rising market volatility driving net outflows in
both Europe and the US.
The positive correlation between equities and bonds meant there
were few, if any, places to hide and the impact on investors led to
all asset classes registering outflows.
Polar Capital was not immune from the headwinds; however, we
held up relatively well given the backdrop and bear markets
impacting our larger strategies. While we experienced selling
pressure across many of our growth centric strategies, including
Technology outflows (GBP1.2bn) and from areas that were out of
favour with investors, such as UK and European equities, we saw
interest and net new inflows into Polar Capital Biotechnology Fund
(GBP154m), Polar Capital Healthcare Blue Chip Fund (GBP69m) and
Polar Capital Global Absolute Return Fund (GBP26m) including
Emerging Market Stars (GBP230m) and Sustainable Thematic Equities
(GBP103m) strategies.
Despite the headwinds, our emergent US business made meaningful
progress over the year, including GBP115m of net inflows for our US
Emerging Markets Stars strategy, which represented over half of the
total raised for the strategy globally.
Overall, we saw total net outflows for the year of GBP1.5bn.
Encouragingly, we saw a marked improvement in the second half of
the year, as outflows slowed. We experienced positive net inflows
in April 2023.
Over the period, AuM declined by 13%, to end the year at
GBP19.2bn (2022: GBP22.1bn), while the decline in AuM in our three
investment trusts and segregated mandates declined by 11% and 9%
respectively. Average AuM was GBP19.6bn, a decrease of 14% (2022:
GBP22.8bn). It is notable that in the last quarter of the financial
year, AuM increased by GBP749m representing a 4% increase in the
quarter.
Communicating with our clients
With uncertainty prevailing and markets likely to remain
volatile for the foreseeable future, our distribution team is
focused on the elements we can control. As ever, we aim to provide
our clients with exceptional service and support, including the
provision of timely and accurate investment insights, both
in-person and digitally. We believe that face-to-face engagement
remains a key element of that provision and is particularly
effective in defending and maintaining existing assets, and also in
identifying new business opportunities.
We continue to invest in our digital marketing capabilities,
aiming to further enhance and expand the way in which we engage and
communicate with our clients. Our goal is to configure and optimise
our client services and marketing so that it is increasingly
tailored to specific client segments and geographies. As an
example, in Q4 2022 we launched our new institutional website
(www.polarcapitalstrategies.com) in both the UK and the US,
providing a tailored platform for institutional investors to access
information on our strategies and capabilities.
Client communication and engagement is fast becoming a point of
differentiation and a way for smaller asset management firms to
compete with larger groups beyond simply price and investment
performance. It was pleasing to see that Polar Capital scored well
in the annual Broadridge Fund Brand 50 survey of investment
professionals. Within the UK, we were the 7th highest ranked brand,
up from 8th the prior year, the smallest group in the top ten based
on AuM and in the company of many much larger peers. Our approach
has always been to deliver a specialist investment offering with a
premium service to our clients and therefore, it was also pleasing
to see Polar Capital retain its number one ranking for Thematic
Equity in the UK and scoring 2nd for client-oriented thinking.
Growth with diversification
Our distribution strategy remains growth with diversification,
by product, client segment and geography.
By successfully combining our sales and digital marketing
capabilities we can extend the reach of our distribution to
accelerate growth. We have established distribution platforms and
deep client relationships in the UK, continental Europe and the
Nordic region.
We continue to extend our reach in the US and south-east Asia.
We recently established a distribution office in Singapore to
support our clients in the region and drive business development in
Japan and Australia.
Our approach to global expansion remains both targeted and
measured.
Outlook
While the outlook for the year ahead remains uncertain and fund
sales difficult to predict, our forecast for the year ahead favours
the positive. Industry fund flows may remain under pressure, at
least in the near-term, however, we believe we are well positioned
to grow by taking market share.
Fund performance and oversight
One of the most interesting aspects of the last 12-18 months has
been the change in macroeconomic and style influences across equity
markets. During this period, there has been a significant pick-up
in the performance of value styles versus growth, and episodes
where the outperformance of large companies versus small has been
particularly marked. The rapid and sizeable moves in interest rates
during calendar year 2022 played a role in style preference, while
investor caution goes some way to explaining the strong performance
of large capitalisation companies.
Polar Capital's strategies are reasonably evenly distributed in
terms of directional sensitivity (i.e. whether they outperform on
up days or down days in the market), and there is also
representation in both value and growth styles, although a greater
percentage of AuM is in growth styles. Many Polar Capital
strategies generate outperformance on days when smaller companies
outperform larger ones.
This is expected, given the bottom-up research orientation of
Polar Capital's investment teams, and the likelihood therefore of
finding the most attractive opportunities in the less well
researched areas of the market. It is also in part a response to
passive competition; clients want us to do something other than own
the largest names in the investment universe.
Nevertheless, this has been a headwind for the performance for
Polar Capital's Technology and North America strategies in the past
year, due to the extended period of outperformance of the world's
largest companies. Further, in down markets, investors often
retreat to the perceived safety and resilience of larger
companies.
Polar Capital Global Technology Fund lagged its benchmark by
450bps in the 12 months to end of March 2023, and Polar Capital
North America Fund underperformed by 120bps. The MST European
Opportunities strategy also suffered from the dominance of larger
names and oil companies in Europe, underperforming by 830 bps in
the year, despite resilient operating performance from many of the
companies in which it invests.
Polar Capital's European ex-UK Income and Japan Value strategies
benefited from the change in market leadership towards value
styles, and reaped the rewards of patience. Polar Capital European
ex-UK Income Fund outperformed by 610 bps in the year, and Polar
Capital Japan Value Fund by 1100bps; both have seen a significant
improvement in 3 year performance as a result.
Polar Capital's Global Insurance Fund, which invests principally
in non-life insurance businesses, outperformed by over 500bps in
the year to March 2023. Increasing short term interest rates give
insurance companies the opportunity to reinvest their 'float' at
higher yields, while insurance premia in many parts of property and
casualty insurance continue to firm.
Polar Capital's Healthcare team also delivered index-beating
returns in the year, with Polar Capital Healthcare Opportunities
Fund outperforming by 280bps, Polar Capital Biotechnology Fund by
200bps and Polar Capital Healthcare Discovery Fund (small and
mid-cap) by 400bps. In the first quarter of 2022, investors sought
safety in the shares of large, well-known pharmaceutical companies,
but their smaller, typically higher growth peers recovered strongly
later in the year, which benefited Polar Capital Healthcare
Opportunities Fund.
Polar Capital's Emerging Market and Asia Stars strategies
finished the year marginally behind benchmark, having gained ground
during the second half of the year to March 2023 as the headwind
from higher energy prices abated, and as the Chinese economy began
to re-open. Polar Capital's China strategy outperformed by 610 bps
over the same period. Stock selection was strong across a number of
sectors, particularly industrials.
The UK Value strategy had a difficult year, with the UK market
dominated by the performance of its large oil and mining companies,
which Polar Capital's team does not in the main own, typically
finding value further down the market capitalisation scale. Rock
bottom valuations in this part of the market are beginning to
attract investors, and the long term potential is significant.
The Zurich based Sustainable Thematic Equities team which joined
Polar Capital in 2021 and invests in beneficiaries of
decarbonisation, electrification, electric vehicles and autonomous
driving performed well, with Polar Capital Smart Energy Fund and
Polar Capital Smart Mobility Fund outperforming their reference
portfolios by 1070bps and 880bps respectively. Demand for energy
management solutions led to power management semiconductor
manufacturers outperforming the broader technology sector.
Polar Capital's closed ended and open ended Financials funds
were a little behind and a little ahead of benchmark respectively.
The year ended on a difficult note due to the underperformance of
some of the funds' US bank holdings. These positions were
significantly reduced, which limited the losses.
Outside long only equities, the Global Convertibles strategy
outperformed by 110bps. 2022 was an unusual year, with bond and
equity markets falling at the same time. In this light, the flat
return delivered by the Convertibles team's Global Absolute Return
fund was a good outcome for clients. The European Long/Short
strategy delivered a negative return of 5.5% over the year, but has
returned +6.4% annualised over 3 years.
As at 31 March 2023, 79% of our UCITS funds' AuM were in the top
two quartiles against the Lipper peer group over one year, 65% in
the top two quartiles over three years with 87% and 93% in the top
two quartiles over five years and since inception respectively.
Of our 22 funds listed within the Dublin UCITS umbrella 73% were
in the top two quartiles over one year, and 85%, 80% and 96% in the
top two quartiles over three years, five years and since inception
respectively.
Financial Review
AuM
Open ended
funds Investment Segregated
AuM movement in twelve months to Trusts mandates Total
31 March 2023 (GBPbn)
------------------------------------ ------------ ------------- ------------- --------
AuM at 1 April 2022 16.6 4.4 1.1 22.1
Net redemptions (1.4) (0.1) - (1.5)
Fund closures (0.4) - (0.1) (0.5)
Market movement and performance (0.5) (0.4) - (0.9)
------------------------------------- ----------- ------------- ------------- --------
Total AuM at 31 March 2023 14.3 3.9 1.0 19.2
------------------------------------- ----------- ------------- ------------- --------
During the financial year, AuM decreased by net redemptions of
GBP1.5bn, outflows from fund closures of GBP0.5bn and a GBP0.9bn
decrease related to market movement and fund performance.
The mix of AuM between open ended funds, investment trusts and
segregated mandates remained unchanged from the prior year.
Average AuM decreased by 14% from GBP22.8bn to GBP19.6bn. This
follows a 37% increase in average AuM over the previous financial
year.
Revenue
31 March 2023 31 March 2022
Management fees GBP'm GBP'm
------------------------------ -------------- --------------
Management and research fees 176.2 209.9
Commissions and fees payable (21.4) (22.6)
Net management fees 154.8 187.3
------------------------------ -------------- --------------
The decrease in the average AuM of 14% translated into the
Group's net management fees decreasing from GBP187.3m in 2022 to
GBP154.8m this year.
Net management fee yield 31 March 2023 31 March 2022
-------------------------------- ---------------- ----------------
Average AuM (GBPbn) 19.6 22.8
Net management fees (GBPm) 154.8 187.3
-------------------------------- ---------------- ----------------
Net management fee yield (bps) 79 82
-------------------------------- ---------------- ----------------
Net management fee yield over the year measured 79bps (2022:
82bps). The decrease was slightly more than our stated expectation
of an annual decrease of at least 1-2bps as net outflows from the
higher margin Technology and Healthcare strategies were replaced by
early stage net inflows into more recently launched strategies at
lower margins.
31 March 2023 31 March 2022
Performance fees GBP'm GBP'm
-------------------- -------------- --------------
Performance fees 6.7 14.1
-------------------- -------------- --------------
The more muted performance posted by our underlying funds
resulted in performance fees earned for the financial year to 31
March 2023 falling to GBP6.7m (2022: GBP14.1m).
Operating Costs 31 March 2023 31 March 2022
GBP'm GBP'm
-------------------------------------------- -------------- --------------
Salaries, bonuses and other staff costs(1) 36.1 36.7
Core distributions(2) 44.0 54.0
Share-based payments(3) 2.7 5.7
Performance fee interests 5.0 10.0
-------------------------------------------- -------------- --------------
Total staff compensation 87.8 106.4
Other operating costs 24.7 23.1
Exceptional items 6.2 11.4
Total operating costs 118.7 140.9
-------------------------------------------- -------------- --------------
1. Including share awards under deferment plan of GBP0.8m (2022: GBP0.9m).
2. Including share awards under deferment plan of GBP0.9m (2022: GBP0.8m).
3. Share-based payments on preference shares of GBP0.3m (2022:
GBP1.1m), LTIPs of GBP1.8m (2022: GBP3.8m) and equity incentive
plan of GBP0.6m (2022: GBP0.7m). Refer to Note 5 below.
The non-GAAP alternative performance measures mentioned here are
described and reconciled in the APM section.
Total operating costs decreased to GBP118.7m (2022: GBP140.9m)
due to lower variable staff compensation costs.
Core distributions, which are variable compensation amounts
payable to investment teams from management fee revenue, decreased
as a direct consequence of the lower average AuM and the resulting
lower management fee revenues and core profits.
Performance fee interests, which are variable compensation
amounts payable to investment teams from performance fee revenue,
decreased in line with the lower amount of such fees generated this
year.
Other operating, non-staff compensation related, costs increased
marginally to GBP24.7m (2022: GBP23.1m) demonstrating good cost
discipline under the prevailing back drop of significant
inflationary pressures.
Exceptional items for both 2023 and 2022 comprised of
significant items of income or expenditure related to acquisitions,
or their unwinding, and are therefore expected to be non-recurring,
as well as the amortisation of acquired intangible assets. The
items are presented separately to allow a supplemental
understanding of the Group's results.
In May 2023, the Group's legal action against First Pacific
Advisors (FPA), the vendor of the funds in the Phaeacian
transaction, and FPA's counterclaim was settled out of court. All
such associated legal costs are included in termination and
reorganisation costs. A further GBP0.6m has been recorded at 31
March 2023 for costs related to the closure of the Phaeacian
entities, and GBP0.3m for the closure of subscale Dalton funds,
with these costs being classified as exceptional items.
A breakdown of exceptional items is as follows:
Exceptional items 31 March 2023 31 March 2022
GBP'm GBP'm
---------------------------------------------------- -------------- --------------
Recorded in operating costs
Termination and reorganisation costs(1) 5.0 3.5
Amortisation of intangibles 1.2 1.9
Impairment of intangibles - 6.0
---------------------------------------------------- -------------- --------------
6.2 11.4
Recorded in other income
Additional charge on deferred consideration - 1.0
Derecognition of deferred consideration liability - (4.8)
- (3.8)
---------------------------------------------------- -------------- --------------
Net exceptional items recorded in the consolidated
statement of profit or loss 6.2 7.6
---------------------------------------------------- -------------- --------------
1. Charges for the current year includes termination and
reorganisation costs of GBP4.7m relating to the Phaeacian
transaction and GBP0.3m relating to the closure of subscale Dalton
funds (2022: Termination and reorganisation costs of GBP0.4m
relating to Phaeacian and GBP3.1m relating to Dalton
acquisition).
Profit before tax 31 March 2023 31 March 2022
GBP'm GBP'm
------------------------------------------- -------------- --------------
Core operating profit 47.9 69.4
Performance fee profit 1.7 4.1
Other income/ (loss)(^) 2.1 (2.7)
Share-based payments on preference shares (0.3) (1.1)
Exceptional items (6.2) (7.6)
------------------------------------------- -------------- --------------
Profit before tax 45.2 62.1
------------------------------------------- -------------- --------------
The non-GAAP alternative performance measures mentioned here are
described and reconciled on the APM page.
^ A reconciliation to reported results is given in the APM
section below.
The headline profit before tax for the year has decreased by 27%
to GBP45.2m (2022: GBP62.1m).
The analysis of the three key components of profits shows
that:
-- Core operating profit
Decreased to GBP47.9m (2022: GBP69.4m) reflecting mainly the
impact of falling average AuM on net management fees and operating
costs.
-- Performance fee profit
Performance fee profit decreased because of muted investment
performance during the current year, where high inflation, rising
interest rates and slowing economic growth were only a few of the
concerns weighing on market sentiment.
-- Other income
The increase in other income is due to marked to market gains
from seed investments held on the Group's balance sheet as well as
interest income from bank balances.
Earnings per share
Basic EPS decreased to 36.8p during the year (2022: 50.8p) and
diluted EPS decreased to 36.1p (2022: 48.7p). The effect of the
adjustments made in arriving at the adjusted diluted total EPS and
adjusted diluted core EPS figures of the Group is as follows:
(Pence) 31 March 2023 31 March 2022
----------------------------------------------- ------------- -------------
Diluted earnings per share 36.1 48.7
Impact of share-based payments - preference
shares 0.3 1.1
Impact of deferment, where staff compensation
costs are deferred into future periods 1.7 (0.8)
Impact of exceptional items 6.2 7.0
----------------------------------------------- ------------- -------------
Adjusted diluted total EPS 44.3 56.0
Of which: Performance fee profit and other
income 4.6 2.2
----------------------------------------------- ------------- -------------
Adjusted diluted core EPS 39.7 53.8
----------------------------------------------- ------------- -------------
Preference shares
A separate class of preference share has historically been
issued by Polar Capital Partners Limited for purchase by each new
team of fund managers on their arrival at the Group.
These shares provide each manager with an economic interest in
the funds that they run and ultimately enable the manager to
convert their interest in the revenues generated from their funds
into equity in Polar Capital Holdings plc.
The equity is awarded in return for the forfeiture of their
current core economic interest and vests over three years with the
full quantum of the dilution being reflected in the diluted share
count (and so diluted EPS) from the point of conversion.
The event has been designed to be, at both the actual and the
diluted levels, earnings enhancing to shareholders.
In the year to 31 March 2023 there were no conversions of
preference shares into Polar Capital Holdings plc equity (2022: two
conversions).
As at 31 March 2023 five sets of preference shares have the
ability to call for a conversion.
The call must be made on or before 30 November 2023 if any
conversion is to take place with effect from 31 March 2023.
As indicated last year, no further preference shares are
expected to be issued and any new teams arriving are expected to be
on a revenue sharing model with deferment into equity in Polar
Capital Holdings plc as the new long-term incentivisation plan for
investment teams. This revised model is not expected to change core
distributions when measured in percentage terms against net
management fee revenue and is expected to be simpler to administer
compared to the preference shares arrangement.
See Note 5 for details.
Balance sheet and cash
At the year end the cash balance of the Group was GBP107.0m
(2022: GBP121.1m). In line with the Group treasury policy, cash is
held across several UK banking counterparties on maturity terms
ranging from 30 to 90 days. At the balance sheet date the Group
held GBP44.1m of investments in its own funds (2022: GBP48.3m).
Capital management
The Group believes in retaining a strong balance sheet. The
capital that is retained in the business is used to seed new
investment products, as a buffer for times of uncertainty, to pay
dividends and fund the EBT to buy Company shares to reduce the
dilutive effects of LTIP and option awards. Depending on the market
outlook, and as the Group grows in size, the allocation of overall
capital amongst these four categories may vary over time.
As at 31 March 2023 GBP44.1m (2022: GBP48.3m) of the Group's
balance sheet was invested to seed fledgling funds and during the
year the Group advanced loans to the EBT of GBP6.0m (2022:
GBP11.8m) to buy shares in the Company.
The Group's dividend policy is to pay an annual dividend within
a range of 55% and 85% of adjusted total earnings, dependent on the
scale of performance fees in the relevant year and the anticipated
trading conditions for the following year. Where appropriate, the
Group will consider using its balance sheet strength to support the
dividend.
As at 31 March 2023 the Group had surplus capital of GBP57.7m
(2022: GBP69.7m) above its regulatory capital requirement of
GBP26.0m (2022: GBP26.0m) and July dividend commitment of GBP30.9m
(2022: GBP30.9m).
Going concern
The Financial Reporting Council has determined that all
companies should carry out a rigorous assessment of all the factors
affecting the business in deciding to adopt a going concern basis
for the preparation of the financial statements.
The Directors have reviewed and examined the financial and other
processes embedded in the business, in particular the annual budget
process and the financial stress testing inherent in the Internal
Capital Adequacy and Risk Assessment ('ICARA').
Based on this review and the significant liquid assets
underpinning the balance sheet relative to the Group's predictable
operating cost profile, the Directors consider that the adoption of
a going concern basis, covering a period of at least 12 months from
the date of this report, is appropriate.
Samir Ayub
Finance Director
23 June 2023
Alternative Performance Measures (APMs)
The Group uses the non-GAAP APMs listed below to provide users
of the Annual Report with supplemental financial information that
helps explain its results for the current accounting period.
APM Definition Reconciliation Reason for use
------------------- ------------------------- ------------------- ---------------------------------------
Core operating Profit before APM reconciliation To present a measure of the
profit performance fee Group's profitability excluding
profits, other performance fee profits and
income and tax. other components which may
be volatile, non-recurring
or non-cash in nature.
------------------- ------------------------- ------------------- ---------------------------------------
Performance fee Gross performance APM reconciliation To present a clear view of
profit fee income less the net amount of performance
performance fee fee earned by the Group after
interests due accounting for staff remuneration
to staff. payable that is directly attributable
to performance fee revenues
generated.
------------------- ------------------------- ------------------- ---------------------------------------
Core distributions Variable compensation APM reconciliation To present additional information
payable to investment thereby assisting users of
teams from management the Annual Report in understanding
fee revenue. key components of variable
costs paid out of management
fee revenue.
------------------- ------------------------- ------------------- ---------------------------------------
Performance Variable compensation APM reconciliation To present additional information
fee interests payable to investment thereby assisting users of
teams from performance the Annual Report in understanding
fee revenue. key components of variable
costs paid out of performance
fee revenue.
------------------- ------------------------- ------------------- ---------------------------------------
Adjusted diluted Profit after Finance The Group believes that (a)
total EPS tax but excluding review as the preference share awards
(a) cost of share-based have been designed to be earnings
payments on preference enhancing to shareholders adjusting
shares, (b) the for this non-cash item provides
net cost of deferred a useful supplemental understanding
staff remuneration of the financial performance
and (c) exceptional of the Group, (b) comparing
items which may staff remuneration and profits
either be non-recurring generated in the same time
or non-cash in period (rather than deferring
nature, and in remuneration over a longer
the case of adjusted vesting period) allows users
diluted earnings of the Annual Report to gain
per share, divided a useful supplemental understanding
by the weighted of the Group's results and
average number their comparability period
of ordinary shares. on period and (c) removing
acquisition related transition
and termination costs as well
as the non-cash amortisation,
and any impairment, of intangible
assets and goodwill provides
a useful supplemental understanding
of the Group's results.
------------------- ------------------------- ------------------- ---------------------------------------
Adjusted diluted Core operating Finance To present additional information
core EPS profit after review that allows users of the Annual
tax excluding Report to measure the Group's
the net cost earnings excluding those from
of deferred core performance fees and other
distributions components which may be volatile,
divided by the non-recurring or non-cash in
weighted average nature.
number of ordinary
shares.
------------------- ------------------------- ------------------- ---------------------------------------
Core operating Core operating Finance To present additional information
profit margin profit divided review that allows users of the Annual
by Report to measure the core
net management profitability of the Group
fees revenue. before performance fee profits,
and other components, which
can be volatile and non-recurring.
------------------- ------------------------- ------------------- ---------------------------------------
Net management Gross management Finance To present a clear view of
fee fees less commissions review the net amount of management
and fees payable. fees earned by the Group after
accounting for commissions
and fees payable.
------------------- ------------------------- ------------------- ---------------------------------------
Net management Net management Finance To present additional information
fee yield fees divided review that allows users of the Annual
by average AuM. Report to measure the fee margin
for the Group in relation to
its assets under management.
------------------- ------------------------- ------------------- ---------------------------------------
Summary of non-GAAP financial performance and reconciliation of
APMs to reported results
The summary below reconciles key APMs the Group measures to its
reported results for the current year and also reclassifies the
line-by-line impact on consolidation of seed investments to provide
a clearer understanding of the Group's core business operation of
fund management.
Any seed investments in newly launched or nascent funds, where
the Group is determined to have control, are consolidated. As a
consequence, the statement of profit or loss of the fund is
consolidated into that of the Group on a line-by-line basis. Any
seed investments that are not consolidated are fair valued through
a single line item (other income) on the Group consolidated
statement of profit or loss.
Reclassification 2023 2022
2023 on consolidation Non-GAAP Non-GAAP
Reported of seed Reclassification results results
Results investments of costs GBP'm GBP'm
GBP'm GBP'm GBP'm APMs
------------------- ----------- ------------------ ------------------ ----------- ----------- ------------------
Investment
management
and research
fees 176.2 - - 176.2 209.9
Commissions
and fees payable (21.4) - - (21.4) (22.6)
Net management
154.8 - - 154.8 187.3 fees
Operating
costs (118.7) 0.4 55.6 (62.7) (63.9)
Finance costs (0.2) - - (0.2) -
Core
- - (44.0) (44.0) (54.0) distributions
------------------- ----------- ------------------ ------------------ ----------- ----------- ------------------
Core operating
35.9 0.4 11.6 47.9 69.4 profit
Performance
fees 6.7 - - 6.7 14.1
Performance fee
- - (5.0) (5.0) (10.0) interests
------------------- ----------- ------------------ ------------------ ----------- ----------- ------------------
Performance fee
6.7 - (5.0) 1.7 4.1 profit
------------------- ----------- ------------------ ------------------ ----------- ----------- ------------------
Other income/
(loss) 2.6 (0.4) (0.1) 2.1 (2.7)
Exceptional
items - - (6.2) (6.2) (7.6)
Share-based
payments
on preference
shares - - (0.3) (0.3) (1.1)
Profit for
the year before
tax 45.2 - - 45.2 62.1
------------------- ----------- ------------------ ------------------ ----------- ----------- ------------------
Consolidated Statement of Profit or Loss
For the year ended 31 March 2023
31 March
2023 31 March 2022
GBP'000 GBP'000
--------------------------------------------- --------- -------------
Revenue 182,877 224,107
Other income 2,579 1,561
---------------------------------------------- --------- -------------
Gross income 185,456 225,668
Commissions and fees payable (21,383) (22,642)
---------------------------------------------- --------- -------------
Net income 164,073 203,026
Operating costs (118,694) (140,936)
Finance costs (175) -
Profit before tax 45,204 62,090
Taxation (9,592) (13,166)
---------------------------------------------- --------- -------------
Profit for the year attributable to ordinary
shareholders 35,612 48,924
---------------------------------------------- --------- -------------
Earnings per share
Basic 36.8p 50.8p
Diluted 36.1p 48.7p
Adjusted basic (Non-GAAP measure) 45.2p 58.4p
Adjusted diluted (Non-GAAP measure) 44.3p 56.0p
---------------------------------------------- --------- -------------
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2023
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------------------------------------- --------- ---------
Profit for the year attributable to ordinary
shareholders 35,612 48,924
----------------------------------------------------- --------- ---------
Other comprehensive income - items that
will be reclassified to profit or loss
statement in subsequent periods
Exchange differences on translation of
foreign operations 430 1,140
----------------------------------------------------- --------- ---------
Other comprehensive income for the year 430 1,140
----------------------------------------------------- --------- ---------
Total comprehensive income for the year,
net of tax, attributable to ordinary shareholders 36,042 50,064
----------------------------------------------------- --------- ---------
All of the items in the above statements are derived from
continuing operations.
Consolidated Balance Sheet
As at 31 March 2023
Restated(1)
31 March 2023 31 March 2022
GBP'000 GBP'000
----------------------------------------- --- -------------- --------------
Non-current assets
Goodwill and intangible assets 15,937 17,100
Property and equipment 10,534 4,113
Deferred tax assets 106 40
---------------------------------------------- -------------- --------------
26,577 21,253
---------------------------------------------- -------------- --------------
Current assets
Assets at fair value through profit or
loss 83,048 77,783
Trade and other receivables 19,523 25,430
Other financial assets 5,237 2,695
Cash and cash equivalents 106,976 121,128
Current tax assets 319 1,563
---------------------------------------------- -------------- --------------
215,103 228,599
---------------------------------------------- -------------- --------------
Total assets 241,680 249,852
---------------------------------------------- -------------- --------------
Non-current liabilities
Provisions and other liabilities 8,900 2,871
Liabilities at fair value through profit
or loss 462 637
Deferred tax liabilities 518 -
---------------------------------------------- -------------- --------------
9,880 3,508
---------------------------------------------- -------------- --------------
Current liabilities
Liabilities at fair value through profit
or loss 16,369 10,023
Trade and other payables 68,651 80,054
Provisions 3,203 -
Other financial liabilities 10 20
Current tax liabilities 712 -
---------------------------------------------- -------------- --------------
88,945 90,097
---------------------------------------------- -------------- --------------
Total liabilities 98,825 93,605
---------------------------------------------- -------------- --------------
Net assets 142,855 156,247
---------------------------------------------- -------------- --------------
Capital and reserves
Issued share capital 2,520 2,506
Share premium 19,364 19,364
Investment in own shares (31,623) (24,915)
Capital and other reserves 12,299 12,417
Retained earnings 140,295 146,875
------------------------------------------------------ -------- --------
Total equity - attributable to ordinary shareholders 142,855 156,247
------------------------------------------------------ -------- --------
(1) Comparative deferred tax balances have been reclassified to
show a net position by tax jurisdiction. See note 1 below for
further information.
Consolidated Statement of Changes in Equity
For the year ended 31 March 2023
Investment
Issued Share in own shares Capital Other Retained
share premium GBP'000 reserves reserves earnings Total equity
capital GBP'000 GBP'000 GBP'000 = GBP'000
GBP'000 GBP'000
----------------------------------------- -------- --------- -------------- ---------- ---------- ---------- --------------
As at 1 April 2021 2,468 19,364 (26,579) 695 10,335 145,157 151,440
Profit for the year - - - - - 48,924 48,924
Other comprehensive
income - - - - 1,140 - 1,140
----------------------------------------- -------- --------- -------------- ---------- ---------- ---------- --------------
Total comprehensive
income - - - - 1,140 48,924 50,064
Dividends paid to
shareholders - - - - - (43,400) (43,400)
Dividends paid to
third-party
interests - - - - - (3) (3)
Issue of shares 38 - - - - 143 181
Own shares acquired - - (12,773) - - - (12,773)
Release of own shares - - 14,437 - - (11,297) 3,140
Share-based payment - - - - - 7,351 7,351
Current tax in respect
of employee share
options - - - - 2,682 - 2,682
Deferred tax in respect
of employee share
options - - - - (2,435) - (2,435)
----------------------------------------- -------- --------- -------------- ---------- ---------- ---------- --------------
As at 1 April 2022 2,506 19,364 (24,915) 695 11,722 146,875 156,247
Profit for the year - - - - - 35,612 35,612
Other comprehensive
income - - - - 430 - 430
----------------------------------------- -------- --------- -------------- ---------- ---------- ---------- --------------
Total comprehensive
income - - - - 430 35,612 36,042
Dividends paid to
shareholders - - - - - (44,481) (44,481)
Issue of shares 14 - - - - (14) -
Own shares acquired - - (10,922) - - - (10,922)
Release of own shares - - 4,214 - - (2,083) 2,131
Share-based payment - - - - - 4,386 4,386
Current tax in respect
of employee share
options - - - - 31 - 31
Deferred tax in respect
of employee share
options - - - - (579) - (579)
----------------------------------------- -------- --------- -------------- ---------- ---------- ---------- --------------
As at 31 March 2023 2,520 19,364 (31,623) 695 11,604 140,295 142,855
----------------------------------------- -------- --------- -------------- ---------- ---------- ---------- --------------
Consolidated Cash Flow Statement
For the year ended 31 March 2023
31 March 2023 31 March 2022
GBP'000 GBP'000
------------------------------------------------ ------------- -------------
Cash flows generated from operating activities
Cash generated from operations 51,975 85,323
Tax paid (7,738) (10,861)
Interest received 888 307
Interest on lease - (95)
------------------------------------------------ ------------- -------------
Net cash inflow generated from operating
activities 45,125 74,674
------------------------------------------------ ------------- -------------
Cash flows generated from investing activities
Investment income 421 227
Sale of assets/liabilities at fair value
through profit or loss 55,277 41,240
Purchase of assets at fair value through
profit or loss (62,765) (70,335)
Purchase of property and equipment (486) (552)
Payments in respect of business combination - (8,120)
Payments in respect of asset acquisition (226) (1,257)
Net cashflow from deconsolidation of seed
investment (11,710) -
------------------------------------------------ ------------- -------------
Net cash outflow from investing activities (19,489) (38,797)
------------------------------------------------ ------------- -------------
Cash flows generated from financing activities
Dividends paid to shareholders (44,481) (43,400)
Lease payments (1,425) (1,306)
Interest on lease (175) -
Issue of shares - 1
Purchase of own shares (10,660) (12,383)
Third-party subscriptions into consolidated
funds 20,673 9,857
Third-party redemptions from consolidated
funds (3,869) (4,552)
------------------------------------------------ ------------- -------------
Net cash outflow from financing activities (39,937) (51,783)
------------------------------------------------ ------------- -------------
Net decrease in cash and cash equivalents (14,301) (15,906)
Cash and cash equivalents at start of the
year 121,128 136,718
Effect of exchange rate changes on cash
and cash equivalents 149 316
------------------------------------------------ ------------- -------------
Cash and cash equivalents at end of the
year 106,976 121,128
------------------------------------------------ ------------- -------------
Selected notes to the Consolidated Financial Statements for the
year ended 31 March 2023
1. General information, Basis of Preparation and Accounting
policies
Corporate information
Polar Capital Holdings plc (the 'Company') is a public limited
company incorporated and domiciled in England and Wales whose
shares are traded on the Alternative Investment Market ('AIM') of
the London Stock Exchange.
Group information
Details of operating subsidiaries, seed capital investments and
indirectly held entities consolidated into the Group are disclosed
in Note 8 below.
Basis of preparation
The consolidated Group financial statements have been prepared
on a going concern basis in accordance with UK-adopted
international accounting standards and in conformity with the
requirements of the Companies Act 2006. The accounting policies
used in the preparation of these financial statements have been
consistently applied, except when otherwise stated.
The consolidated financial statements have been prepared under
the historical cost convention, modified by the measurement at fair
value of certain financial assets and liabilities and derivative
financial instruments. The consolidated financial statements are
presented in Sterling and all values are rounded to the nearest
thousand (GBP'000), except when otherwise stated.
Restatement of prior period information
The Group has amended the presentation of deferred tax on the
consolidated balance sheet to offset deferred tax assets and
liabilities and present these on a net basis for each separate tax
jurisdiction. As a result, the 2022 comparative amounts have also
been reclassified.
The reclassification impact of the change in presentation is
that for the year ended 31 March 2022, a net deferred tax asset
position of GBP40,000 is presented (previously: deferred tax asset
of GBP3,475,000 and deferred tax liability of GBP3,435,000). There
was no impact on the profit for the year ended 31 March 2022 or
total equity attributable to ordinary shareholders at 31 March
2022. The reclassification impact on the opening balance at 1 April
2021 was a net deferred tax asset position of GBP1,667,000
(previously: deferred tax asset of GBP5,783,000 and deferred tax
liability of GBP4,116,000) with no impact on total equity
attributable to ordinary shareholders.
Going concern
The Directors have made an assessment of going concern taking
into account both the Group's results as well as the impact on the
Group's outlook. As part of this assessment the Directors have used
a range of information available to the date of issue of these
financial statements and considered the Group budget, longer term
financial projections, cash flow forecasts and an analysis of the
Group's liquid assets and its regulatory capital position and
forecasts. The stress testing scenarios applied as part of the
Group's ICARA have also been revisited to ensure they remain
appropriate.
The Group continues to maintain a robust financial resources
position, access to cashflow from ongoing investment management
contracts and the Directors believe that the Group is well placed
to manage its business risks. The Directors also have a reasonable
expectation that the Group and the Company have adequate resources
to continue operating for a period of at least 12 months from the
date of signing the financial statements. Therefore, the Directors
continue to adopt the going concern basis of accounting in
preparing the consolidated financial statements.
Basis of consolidation
The consolidated financial statements of the Group comprise the
financial statements of the Company and its subsidiaries as at 31
March 2023. Subsidiaries are those entities over which the Group
has control. The Group controls an investee if, and only if, the
Group has:
-- Power over the investee;
-- Exposure, or rights, to variable returns from its involvement with the investee; and
-- The ability to use its power over the investee to affect returns.
The Group considers all relevant facts and circumstances in
assessing whether it has power over an investee, including the
purpose and design of an investee, relevant activities, substantive
and protective rights, voting rights and potential voting
rights.
The financial statements of subsidiaries are either prepared for
the same reporting period as the parent company or where necessary,
adjustments are made to the financial statements of subsidiaries to
bring their reporting period and results in line with those of the
Group. All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
When the Group loses control over a subsidiary, it derecognises
the related assets, liabilities, third-party interest and other
components of equity, while any resultant gain or loss is
recognised in profit or loss. Any investment retained is recognised
at fair value.
Seed capital investments in funds that the Group manages are
accounted for as subsidiaries, associates or financial assets at
fair value through profit or loss (FVTPL) depending on the holdings
of the Group, on the level of influence and control that the Group
is judged to have and whether the Group assesses it is acting as an
agent or principal for its holdings in the seed capital
investments. There is no fixed minimum percentage at which the
Group consolidates, and each exposure is reviewed individually.
Where the Group concludes it is acting as a principal the entity
is consolidated. This assessment is based on the Group's total
exposure. This incorporates direct holdings, income earned from
management and performance fees and the assessed strength of
third-party kick-out rights. The funds consolidated at 31 March
2023 are disclosed in Note 8.
The Group concludes that it acts as an agent when the power it
has over an entity is deemed to be exercised for the benefit of
third-party investors.
The Group re-assesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Subsidiaries are fully
consolidated from the date on which the Group obtains control and
continue to be consolidated until the date when such control
ceases.
Where external investors hold redeemable shares in funds
controlled by the Group, the portion of profit or loss and net
assets held by these third-party interests is included within other
income in the consolidated statement of profit or loss and as
financial liabilities at FVTPL in the consolidated balance sheet
respectively.
Net cashflows on initial consolidation or deconsolidation are
presented as investing activities within the consolidated cashflow
statement. Cashflows from third-party interests into consolidated
funds are presented as financing activities.
Investment in associates
An associate is an entity over which the Group has significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee but is not
control or joint control over those policies. Generally, it is
presumed that the Group has significant influence where it has
voting rights of 20% or more, but not control of an investee.
Seed capital investments over which the Group has significant
influence, but not control, are carried on the balance sheet as
assets at FVTPL as permitted by IAS 28: Investment in Associates,
with changes in fair value recognised in the consolidated statement
of profit or loss. The fair value of investments in associates is
determined by reference to the quoted price at the close of
business on the balance sheet date. The Group has no other
investments in associates and, therefore, no associates are
currently accounted for using the equity method.
Goodwill and intangible assets
Goodwill arising on the acquisition of a business is the excess
of the consideration paid over the net identifiable assets acquired
and liabilities assumed. Goodwill is measured at cost less any
accumulated impairment losses. Impairment testing is based on the
expected future benefits of the relevant cash-generating unit (CGU)
as a whole.
Intangible assets such as investment management contracts
acquired separately are measured on initial recognition at cost
which is their fair value as at acquisition date. Following initial
recognition, intangible assets are carried at cost less any
accumulated amortisation and accumulated impairment losses, with
the related expenditure or charge recognised in the consolidated
statement of profit or loss. Intangible assets are amortised on a
straight-line basis over their useful economic lives. Intangible
assets are derecognised upon disposal or when no future economic
benefits are expected from their use or disposal. Any gain or loss
on derecognition is included in the consolidated statement of
profit or loss.
Property and equipment
Property and equipment is made up of leasehold improvements,
computer equipment and office furniture and right-of-use lease
assets.
Property and equipment (excluding right-of-use lease assets) are
stated at cost, including directly attributable acquisition costs,
less depreciation and accumulated impairment provisions.
Depreciation is provided at rates calculated to write off the cost
of each asset over its expected useful economic life.
Depreciation is charged from the date that the asset is brought
into use on a straight-line basis as follows:
-- Leasehold improvements 10%
-- Computer equipment 33%
-- Office furniture 33%
-- Right-of-use assets Shorter of the lease term and the
estimated useful life of the asset
--
Property and equipment is derecognised upon disposal or when no
future economic benefit is expected from its use.
Any gain or loss arising on the disposal is included in the
consolidated statement of profit or loss.
The residual values, useful lives and methods of depreciation of
property and equipment are reviewed regularly and
adjusted prospectively, if appropriate.
Leases
The Group applies a single recognition and measurement approach
for all leases, except for short-term leases and leases of
low-value assets. The Group recognises lease liabilities to make
lease payments and right-of-use assets representing the right to
use the underlying assets.
Right-of-Use (ROU) assets
The Group recognises ROU assets at the commencement date of the
lease (i.e. the date the underlying asset is available for use).
ROU assets are measured at cost, less any accumulated depreciation
and impairment losses, and adjusted for any remeasurement of lease
liabilities and presented with property and equipment. The cost of
ROU assets includes the initial amount of lease liabilities
recognised, initial direct costs incurred, and lease payments made
at or before the commencement date less any lease incentives
received. Unless the Group is reasonably certain to obtain
ownership of the leased asset at the end of the lease term, the
recognised ROU assets are depreciated on a straight-line basis over
the shorter of its estimated useful life and the lease term. ROU
assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, payments of penalties for terminating a lease and
amounts expected to be paid under residual value guarantees. In
calculating the present value of lease payments, the Group uses an
incremental borrowing rate at the lease commencement date if the
interest rate implicit in the lease is not readily
determinable.
After the commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced for the
lease payments made. The Group's lease liabilities are included in
trade and other payables and non-current provisions and other
liabilities.
Short-term and low value leases
Lease payments on short-term leases (where the lease term is 12
months or less) and leases of low value assets are recognised as an
expense on a straight-line basis over the lease term.
Financial assets
The Group's financial assets include seed capital investments,
investment securities, trade and other receivables, cash and cash
equivalents and derivative financial instruments. The
classification adopted by the Group depends on the purpose for
which the financial assets were acquired and is determined at
initial recognition.
Financial assets are initially recognised at fair value, being
the consideration given, plus, any directly attributable
transaction costs, except in the case of financial assets recorded
at fair value through profit or loss where transaction costs are
immediately recognised in the consolidated statement of profit or
loss.
Purchases and sales of financial assets are recognised at trade
date, being the date when the Group commits to purchase or sell the
asset.
Financial assets at fair value through profit or loss
(FVTPL)
Financial assets at FVTPL include the Group's investments in the
funds that it manages, but does not control, including those which
are held by the Group against bonus awards deferred into fund
units. Such assets are subsequently carried at fair value, with any
gains or losses arising from changes in fair value being recognised
in the consolidated statement of profit or loss.
Investment securities
Investment securities represent securities both long and short
positions, other than derivatives, held by consolidated funds.
These securities are classified as FVTPL and are measured at fair
value with gains and losses recognised through the consolidated
statement of profit or loss.
Financial liabilities
The Group's financial liabilities include trade and other
payables, derivative financial instruments, deferred consideration
payable and third-party interests in funds that have been
consolidated as subsidiaries.
Financial liabilities at fair value through profit or loss
Financial liabilities at FVTPL are carried at fair value, with
gains and losses recognised in the consolidated statement of profit
or loss within other income in the period in which they arise.
Financial liabilities at FVTPL include third-party interests in
consolidated funds which are classified as at FVTPL.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. The expense
relating to a provision is presented in the statement of profit and
loss net of any reimbursement.
Contingent liabilities
Contingent liabilities are potential obligations that may arise
due to uncertain future events that are not wholly within the
control of the Group. Such liabilities are disclosed when the
chance of such events occurring is no longer remote.
Revenue from contracts with customers
Revenue from contracts with customers represents fees
receivable, excluding value added tax, for discretionary investment
management services and research fees during the year.
Management fees are based on a percentage of assets under
management either per calendar month or quarter as set out in the
relevant investment management agreements (IMA). Management fees
relate specifically to the Group's provision of investment
management services for each relevant time period and therefore
such services are satisfied over time because either the customer
simultaneously receives and consumes the benefits provided by the
fund manager as the service is provided or, the fund manager's
performance enhances the assets that the fund controls. Management
fees are recognised as the service is provided and it is probable
that the fee will be collected.
Research fee income relates to research provided in respect of
funds managed in accordance with the relevant IMA and is recognised
as the service is provided and it is probable that the fee will be
collected.
Performance fees are variable consideration based on a
percentage of investment performance achieved relative to
predefined benchmarks as set out in the relevant IMA. Performance
fees by their nature are highly susceptible to volatility until
they are crystallised and are no longer subject to claw back. This
is usually at the end of the performance period of a fund when the
performance fee calculation can be confirmed with certainty.
Therefore, performance fees are recognised at the point when they
are crystallised.
Commissions and fees payable
Commissions and fees payable to third parties are in respect of
rebates on investment management fees, distribution and research
fees, and are recognised over the period for which the service is
provided.
Standards and amendments not yet effective
There are no new or amended standards and interpretations that
are issued, but not yet effective, up to the date of issuance of
the Group's consolidated financial statements that would be
expected to have a material impact on the Group when they become
effective.
Changes in accounting policies and disclosures
No standards or amendments have been issued during the year that
have had or are expected to have an impact on the Group's
consolidated financial statements.
2. Revenue
31 March 2023 31 March 2022
GBP'000 GBP'000
---------------------------------------- ------------- -------------
Investment management and research fees 176,219 209,988
Investment performance fees 6,658 14,119
182,877 224,107
---------------------------------------- ------------- -------------
Geographical analysis of revenue (based on the residency of
source) is as follows:
31 March 2023 31 March 2022
GBP'000 GBP'000
------------------------- ------------- -------------
United Kingdom 29,293 35,138
Ireland 140,319 166,752
Cayman Islands 1,308 4,232
United States of America 609 5,698
Rest of Europe 10,180 11,675
Rest of the world 1,168 612
182,877 224,107
------------------------- ------------- -------------
3. Operating costs
a) Operating costs include the following expenses:
31 March 2023 31 March 2022
GBP'000 GBP'000
----------------------------------------------------- ------------- -------------
Staff costs including partnership profit allocations 88,308 107,989
Depreciation 2,166 1,404
Amortisation and impairment of intangible assets 1,163 7,860
Auditors' remuneration 432 383
----------------------------------------------------- ------------- -------------
Included within operating costs is an amount of GBP5.0m in
relation to costs treated as exceptional items including
termination costs of GBP0.5m.
b) Auditors' remuneration:
31 March 31 March
2023 2022
GBP'000 GBP'000
----------------------------------------------------- --------- ---------
Audit of Group and Company financial statements 106 125
Statutory audits of subsidiaries 199 151
Audit-related assurance services 7 6
Other assurance services - internal controls report 120 101
432 383
----------------------------------------------------- --------- ---------
4. Dividends paid and proposed
Dividends on ordinary shares declared and paid during the
year:
31 March 2023 31 March 2022
GBP'000 GBP'000
-------------------------------------------------------- ------------- -------------
First interim dividend for 2023: 14.0p per share (2022:
14.0p per share) 13,570 13,564
Second interim dividend for 2022: 32.0p per share
(2021: 31.0p per share) 30,911 29,836
--------------------------------------------------------
Total dividend paid and charged to equity 44,481 43,400
-------------------------------------------------------- ------------- -------------
The Board has declared a second interim dividend of 32.0p (2022:
32.0p) to be paid in July 2023.
Together with the first interim dividend of 14.0p paid in
January 2023 the total dividend for the year amounts to 46.0p
(2022: 46.0p).
5. Share-based payments
A summary of the charge to the consolidated statement of profit
or loss for each share-based payment arrangement is as follows:
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------------- --------- ---------
Preference shares 316 1,095
LTIP awards 1,737 3,808
Equity incentive plan 603 740
Deferred remuneration plan 1,730 1,708
---------------------------- --------- ---------
4,386 7,351
---------------------------- --------- ---------
Certain employees of the Group and partners of Polar Capital LLP
hold Manager Preference Shares or Manager Team Member Preference
Shares (together 'Preference Shares') in Polar Capital Partners
Limited, a group company.
The preference shares are designed to incentivise and retain the
Group's fund management teams. These shares provide each manager
with an economic interest in the funds that they run and ultimately
enable the manager, at their option and at a future date, to
convert their interest in the revenues generated from their funds
to a value that may (at the discretion of the parent undertaking,
Polar Capital Holdings plc) be satisfied by the issue of ordinary
shares in Polar Capital Holdings plc. Such conversion takes place
according to a pre-defined conversion formula that considers the
relative contribution of the manager to the Group as a whole. The
equity is awarded in return for the forfeiture of a manager's
current core economic interest and is issued over three years from
the date of conversion.
The issue of the Preference Shares constitutes a share-based
payment under IFRS 2 and the cost is the estimated fair value, at
the date of issue of the preference shares, of the effective
entitlement to the ordinary shares. At each reporting date the
estimated number of ordinary shares to be ultimately issued upon
conversion will vary and the holder, initially, and the Group,
ultimately, determines the start of the three year period
('Crystallisation') over which the ordinary shares are awarded
following conversion. The start of this period will always be at
least three years after the end of the financial accounting period
in which the preference shares are issued.
In the year to 31 March 2023, no conversions of preference
shares into Polar Capital Holdings plc equity were made (2022: two
teams called for a conversion).
At 31 March 2023 five sets of preference shares (2022: five
sets) have the right to call for conversion.
The following table illustrates the number of, and movements in,
the estimated number of ordinary shares to be issued.
Estimated number of ordinary shares to be issued against
preference shares with a right to call for conversion:
31 March 31 March
2023 2022
Number of Number of
shares shares
---------------------------- ----------- -----------------------
At 1 April 2,740,604 4,426,528
Conversion/crystallisation - (1,350,514)
Movement in the year (372,924) (335,410)
---------------------------- ----------- -----------------------
At 31 March 2,367,680 2,740,604
---------------------------- ----------- -----------------------
Number of ordinary shares to be issued against converted
preference shares:
31 March 31 March
2023 2022
Number of Number of
shares shares
------------------------------ ----------- ------------
Outstanding at 1 April 1,352,128 1,766,541
Conversion/crystallisation - 1,350,514
Adjustment on re-calculation - (295,954)
Issued in the year (541,818) (1,468,973)
------------------------------ ----------- ------------
Outstanding at 31 March 810,310 1,352,128
------------------------------ ----------- ------------
6. Earnings per Share
A reconciliation of the figures used in calculating the basic,
diluted, adjusted basic and adjusted diluted total earnings per
share (EPS) is as follows:
31 March 2023 31 March 2022
GBP'000 GBP'000
Earnings
Profit after tax for purpose of basic and diluted
EPS 35,612 48,924
------------------------------------------------------- ------------- -------------
Adjustments (post tax):
Add exceptional items - acquisition related costs - 2,896
Add exceptional items - amortisation of intangible
assets 1,163 1,865
Add exceptional items - impairment of intangible
assets - 5,995
Add exceptional items - termination and reorganisation
costs 4,959 -
Less exceptional items - net gain on derecognition
of deferred consideration liabilities - (3,749)
Add back cost of share-based payments on preference
shares 316 1,095
Add/(less) net amount of deferred staff remuneration 1,663 (793)
------------------------------------------------------- ------------- -------------
Profit after tax for purpose of adjusted basic and
adjusted diluted total EPS 43,713 56,233
------------------------------------------------------- ------------- -------------
The adjusted EPS figure includes an adjustment for deferred
remuneration costs. The Group believes that aligning staff
remuneration and profits generated in the same period will allow
users of the financial statements to get a useful supplemental
understanding of the Group's results and their comparability year
on year.
Exceptional items were also excluded from the adjusted EPS
calculations as they included costs such as non-recurring
termination and reorganisation costs and the amortisation of
acquired intangible assets.
31 March 2023
Number of 31 March 2022
shares Number of shares
'000 '000
-------------------------------------------------------- ------------- -----------------
Weighted average number of shares
Weighted average number of ordinary shares, excluding
own shares, for the purpose of basic and adjusted
basic EPS 96,778 96,300
Effect of dilutive potential shares - LTIPs, share
options and preference shares crystallised but not
yet issued 1,870 4,190
-------------------------------------------------------- ------------- -----------------
Weighted average number of ordinary shares, for purpose
of diluted and adjusted diluted total EPS 98,648 100,490
-------------------------------------------------------- ------------- -----------------
31 March 2023 31 March 2022
Pence Pence
------------------- ------------- -------------
Earnings per share
Basic 36.8 50.8
Diluted 36.1 48.7
Adjusted basic 45.2 58.4
Adjusted diluted 44.3 56.0
------------------- ------------- -------------
7. Goodwill and intangible assets
Investment
management
Goodwill contracts Total
GBP'000 GBP'000 GBP'000
----------------------------------------- ----------- ------------ ----------
Cost
As at 1 April 2022 6,732 18,647 25,379
As at 31 March 2023 6,732 18,647 25,379
----------------------------------------- ----------- ------------ ----------
Accumulated amortisation and impairment
As at 1 April 2022 - 8,279 8,279
Amortisation for the year - 1,163 1,163
As at 31 March 2023 - 9,442 9,442
----------------------------------------- ----------- ------------ ----------
Net book value as at 31 March 2023 6,732 9,205 15,937
----------------------------------------- ----------- ------------ ----------
Cost
As at 1 April 2021 6,770 18,647 25,417
Acquisition during the year (38) - (38)
----------------------------------------- ------ ------- -------
As at 31 March 2022 6,732 18,647 25,379
----------------------------------------- ------ ------- -------
Accumulated amortisation and impairment
As at 1 April 2021 - 419 419
Amortisation for the year - 1,865 1,865
Impairment for the year - 5,995 5,995
----------------------------------------- ------ ------- -------
As at 31 March 2022 - 8,279 8,279
----------------------------------------- ------ ------- -------
Net book value as at 31 March 2022 6,732 10,368 17,100
----------------------------------------- ------ ------- -------
1. The re-measurement of goodwill relates to the purchase price
adjustment recognised in the year ended 31 March 2022.
Amortisation and impairment of intangible assets are treated as
exceptional items.
(a) Goodwill
Goodwill relates to the acquisition of Dalton Capital (Holdings)
Limited, the parent company of Dalton Strategic Partnership LLP, a
UK based boutique asset manager acquired on 26 February 2021. The
goodwill is attributable to a single CGU.
(b) Intangible assets
The table below shows the carrying amount assigned to each
component of the intangible asset and the remaining amortisation
period.
31 March 2023 31 March 2022
--------------------------------- --------------------------- ---------------------------
Remaining Remaining
Carrying amortisation Carrying amortisation
value period value period
GBP'000 GBP'000
--------------------------------- ----------- -------------- ----------- --------------
Investment management contracts
acquired from Dalton Capital
(Holdings) Limited 9,205 7.9 years 10,368 8.9 years
9,205 10,368
--------------------------------- ----------- -------------- ----------- --------------
8. Property and equipment
Right-of-use Leasehold Computer Office
assets Improvements Equipment Furniture Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ------------- -------------- ----------- ----------- ----------
2023
Cost
As at 1 April 2022 10,749 2,086 969 497 14,301
Additions 4,126 370 108 8 4,612
Modification 3,975 - - - 3,975
------------------------- ------------- -------------- ----------- ----------- ----------
As at 31 March 2023 18,850 2,456 1,077 505 22,888
------------------------- ------------- -------------- ----------- ----------- ----------
Accumulated Depreciation
As at 1 April 2022 7,763 1,256 743 426 10,188
Charge for the year 1,768 220 134 44 2,166
------------------------- ------------- -------------- ----------- ----------- ----------
As at 31 March 2023 9,531 1,476 877 470 12,354
------------------------- ------------- -------------- ----------- ----------- ----------
Net book value as at 31
March 2023 9,319 980 200 35 10,534
------------------------- ------------- -------------- ----------- ----------- ----------
Additions to right-of-use assets include GBP2.5m in respect of a
new lease for additional premises at 16 Palace Street, GBP1.1m and
GBP0.5m for leased premises for the Zurich and Connecticut offices
respectively. The weighted average lessee's incremental borrowing
rate applied was 2.54%.
Effective 1 February 2023, the Group has extended its existing
lease at 16 Palace Street for an additional tenure of 4 years and
has treated this transaction as a modification of the existing
lease under the accounting standards.
Right-of-use Leasehold Computer Office
assets Improvements Equipment Furniture Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ------------- -------------- ----------- ----------- ----------
2022
Cost
As at 1 April 2021 10,749 1,756 957 426 13,888
Additions - 330 151 71 552
Disposal - - (139) - (139)
------------------------- ------------- -------------- ----------- ----------- ----------
As at 31 March 2022 10,749 2,086 969 497 14,301
------------------------- ------------- -------------- ----------- ----------- ----------
Accumulated Depreciation
As at 1 April 2021 6,654 1,066 649 415 8,784
Charge for the year 1,109 190 94 11 1,404
------------------------- ------------- -------------- ----------- ----------- ----------
As at 31 March 2022 7,763 1,256 743 426 10,188
------------------------- ------------- -------------- ----------- ----------- ----------
Net book value as at 31
March 2022 2,986 830 226 71 4,113
------------------------- ------------- -------------- ----------- ----------- ----------
9. Leases
A maturity analysis of the Group's lease liabilities is as
follows:
31 March 2023 31 March 2022
Lease liabilities GBP'000 GBP'000
------------------ ------------- -------------
Current 1,729 1,246
Non-current 7,526 1,896
------------------
9,255 3,142
------------------ ------------- -------------
The lease liabilities relate to the two leases in respect of the
Group's premises at 16 Palace Street in London, both expiring in
January 2028, and the Group's premises in Zurich, expiring in
November 2026. The movement in lease balances during the year was
GBP6.1m, of which GBP1.6m were lease payments, GBP0.2m was the
interest expense, GBP3.5m related to initial recognition of new
leases and GBP4.0m related to lease modification of the existing
lease (2022: The movement in lease balances was GBP1.2m, of which
GBP1.3m were lease payments, GBP0.1m was the interest expense).
The consolidated statement of profit or loss includes the
following amounts relating to leases recorded within operating
costs:
31 March 2023 31 March 2022
GBP'000 GBP'000
-------------------------------------- ------------- -------------
Interest expense on lease liabilities 175 95
Depreciation on ROU assets 1,768 1,109
--------------------------------------
1,943 1,204
-------------------------------------- ------------- -------------
There are no lease expenses incurred in relation to low-value
assets or short-term leases.
10. Subsidiary undertakings
The consolidated financial statements of the Group include the
operating subsidiaries listed below. At 31 March 2023 and 2022 all
operating subsidiaries, other than Polar Capital Partners Limited
and Polar Capital US Holdings Limited, were indirectly held. All
operating subsidiaries are wholly owned, except for: Polar Capital
LLP in which Polar Capital Partners Limited has contributed 54%
(2022: 23%) of the capital. The Company is deemed to be the
controlling party of Polar Capital LLP.
Name Country of Registered Principal
incorporation office activities
Polar Capital Partners UK 16 Palace Street, London, Services company
Limited UK
--------------- -------------------------- ---------------------------
Polar Capital US UK 16 Palace Street, London, Investment holding company
Holdings Limited UK
--------------- -------------------------- ---------------------------
Polar Capital LLP UK 16 Palace Street, London, Investment management
UK
--------------- -------------------------- ---------------------------
Polar Capital Secretarial UK 16 Palace Street, London, Corporate secretary
Services Limited UK
--------------- -------------------------- ---------------------------
Polar Capital Partners Jersey 12 Castle Street, St Dormant
(Jersey) Limited Helier, Jersey
--------------- -------------------------- ---------------------------
Polar Capital (America) USA 2711 Centreville Road, Investment advisory
Corporation Wilmington, Delaware,
USA
--------------- -------------------------- ---------------------------
Polar Capital (Europe) France 18 Rue de Londres, Investment management
SAS Paris, France
--------------- -------------------------- ---------------------------
Polar Capital (Shanghai) China Bund Finance Centre Services company
Consulting Co Limited S2, No.600 Zhongshan
East 2 Road, Shanghai
--------------- -------------------------- ---------------------------
Polar Capital Holdings USA 1209 Orange Street, Investment holding company
LLC Wilmington, Delaware,
USA
--------------- -------------------------- ---------------------------
Dalton Capital (Holdings) UK 16 Palace Street, London, Investment holding company
Limited UK
--------------- -------------------------- ---------------------------
Dalton Strategic UK 16 Palace Street, London, Dormant
Partnership LLP UK
--------------- -------------------------- ---------------------------
Polar Capital (Switzerland) Switzerland Klausstrasse 4, Zurich, Investment management
AG Switzerland
--------------- -------------------------- ---------------------------
Polar Capital (Singapore) Singapore 77 Robinson Road, #13-00, Services company
Private Limited Robinson 77, Singapore
(068896)
--------------- -------------------------- ---------------------------
The consolidated financial statements of the Group also include
the following seed capital investments and indirectly held entities
which were judged to require consolidation into the Group as at 31
March 2023:
Name Country Registered office Principal activities Percentage
of of ordinary
incorporation shares held
4 Georges Court,
Polar Capital China 54-62 Townsend Street,
Stars Fund Ireland Dublin, Ireland UCITS sub-fund 47%
---------------- ------------------------- ----------------------- -------------
4 Georges Court,
Polar Capital Smart 54-62 Townsend Street,
Mobility Fund Ireland Dublin, Ireland UCITS sub-fund 35%
---------------- ------------------------- ----------------------- -------------
1209 Orange Street,
Phaeacian Partners Wilmington, Delaware,
Holdings LP USA USA Investment management 55%
---------------- ------------------------- ----------------------- -------------
1209 Orange Street,
Phaeacian Partners Wilmington, Delaware,
LLC USA USA Investment management 55%
---------------- ------------------------- ----------------------- -------------
The Group was deemed to have lost control over two of its seed
capital investments during the current financial year. The Group
has therefore deconsolidated Polar Capital Emerging Market Stars
Fund, the US 40-Act mutual fund, and Polar Capital China Mercury
Fund effective 31 July 2022 and 30 December 2022 respectively.
11. Financial Instruments
The fair value of financial instruments that are traded in
active markets at each reporting date is determined by reference to
quoted market prices or dealer price quotation (bid price for long
positions and ask price for short positions), without any deduction
for transaction costs. For financial instruments not traded in an
active market, such as forward exchange contracts, the fair value
is determined using appropriate valuation techniques that take into
account the terms and conditions of the contracts and utilise
observable market data, such as spot and forward rates, as
inputs.
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
Level 1: quoted (unadjusted) prices in active markets for
identical assets or liabilities.
Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly.
Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
At the end of both the current year as well as the comparative
period, all financial instruments at fair value through profit or
loss held by the Group were Level 1 except for:
-- forward foreign exchange contracts classified as Level 2.
These were fair valued using valuation techniques that incorporate
foreign exchange spot and forward rates.
-- other financial liability classified as Level 3. These were
fair valued using a discounted cash flow models that incorporate
unobservable inputs.
The fair value hierarchy of financial assets and liabilities
which are carried at fair value at the year-end is as follows:
31 March 2023 31 March 2022
------------------------------------------ ------------------------------------------
Level Level Level Total Level Level Level Total
1 2 3 GBP'000 1 2 3 GBP'000
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Financial assets
Assets at FVTPL 83,048 - - 83,048 77,783 - - 77,783
Other financial assets 5,237 - - 5,237 2,695 - - 2,695
----------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
88,285 - - 88,285 80,478 - - 80,478
----------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Financial liabilities
Liabilities at FVTPL 16,285 - 546 16,831 9,805 - 855 10,660
Other financial liabilities - 10 - 10 - 20 - 20
----------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
16,285 10 546 16,841 9,805 20 855 10,680
----------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Movement in liabilities at FVTPL categorised as Level 3 during
the year were:
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------------------------------------- --------- ---------
At 1 April 855 14,054
Repayment (226) (9,416)
Net gain recognised in the statement of profit or
loss (83) (3,783)
--------------------------------------------------- --------- ---------
At 31 March 546 855
--------------------------------------------------- --------- ---------
The fair value of financial instruments not held at fair value
approximates to their carrying value as at reporting date. During
the reporting year there were no transfers between levels in fair
value measurements.
12. Cash flows generated from operations
A reconciliation of profit before tax to cash generated from
operations is as follows:
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------------------------------------------- --------- ---------
Profit before tax 45,204 62,090
Interest receivable and similar income (745) (60)
Investment income (564) (247)
Interest on lease 175 95
Depreciation of non-current property and equipment 2,166 1,404
Amortisation and impairment of intangible assets 1,163 7,860
(Increase)/ decrease in assets at FVTPL (4,152) 7,710
Decrease in other financial liabilities (504) (10,402)
Decrease/(increase) in receivables 5,906 (1,506)
(Decrease)/increase in trade and other payables
including other provisions (8,678) 8,421
Share-based payment 4,386 7,351
Increase/(decrease) in liabilities at FVTPL(1) 262 (3,931)
Release of fund units held against deferred remuneration 7,356 6,538
Cash flows generated from operations 51,975 85,323
---------------------------------------------------------- --------- ---------
1. The movement includes those arising from acquiring and/or
losing control of consolidated seed funds.
13. Contingent liabilities
There are no contingent liabilities to disclose at 31 March 2023
(2022: nil).
14. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on
consolidation and are not included in this Note.
15. Status of results announcement
The Board of Directors approved this results announcement on 23
June 2023. Whilst the financial information included in this
announcement has been prepared in accordance with UK-adopted
international accounting standards, this announcement does not
itself contain sufficient information to comply with all the
disclosure requirements of UK-adopted international accounting
standards and does not constitute statutory accounts of the Group
for the years ended 31 March 2023 or 31 March 2022.
Neither the contents of the Company's website nor the contents
of any website accessible from the hyperlinks on the Company's
website (or any other website) is incorporated into or forms part
of this announcement .
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END
FR EAAKSADFDEAA
(END) Dow Jones Newswires
June 26, 2023 02:00 ET (06:00 GMT)
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