TIDMREC
RNS Number : 2226G
Record PLC
24 November 2020
24 November 2020
RECORD PLC
INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHSED 30 SEPTEMBER
2020
Resilient, in-line performance with positive growth outlook;
interim dividend declared
Record plc ("Record" or "the Company"), the specialist currency
manager, today announces its unaudited results for the six months
ended 30 September 2020.
Financial headlines:
-- Growth in AUME ([1]) of 12% in USD terms to $65.9bn (31 March
2020: $58.6bn) and 8% in GBP terms to GBP51.0bn (31 March 2020:
GBP47.3bn)
-- Continued growth in client numbers to 74 (31 March 2020:
72)
-- Revenue growth of 4% to GBP11.8m (H1 20: GBP11.4m)
-- Management fees remained robust, growing 1% to GBP11.2m (six
months to 30 September 2019: GBP11.1m)
-- No performance fees in period (six months to 30 September
2019: GBPnil)
-- Operating margin of 22% (six months to 30 September 2019:
27%) reflects investment in sales capabilities spanning both new
hires and new technology
-- Profit before tax of GBP2.6m (six months to 30 September
2019: GBP3.2m)
-- Basic EPS of 1.10 pence (six months to 30 September 2019:
1.29 pence)
-- Strong financial position with shareholders' equity of
GBP25.7m (30 September 2019: GBP26.4m)
-- Interim dividend of 1.15 pence per share will be paid on 31
December 2020 (interim dividend in respect of six months to 30
September 2019: 1.15 pence per share)
Key developments:
-- Tangible progress made in developing an innovative currency
solution in the area of ESG and Impact investment in collaboration
with a European wealth manager, which will provide further
diversification and scope for material upside
-- New Dynamic Hedging mandate of approximately $8bn announced
on 21 September has now started and will build up over time
-- Expansion of distribution capability through new hires in
client facing team and the introduction of third party
distributors
-- Modernisation of business continues with investment in
technology to enhance business processes and expand our
product/service offering
Commenting on the results, Leslie Hill, Chief Executive Officer
of Record plc, said:
"We have made tangible progress in our first half against our
strategic growth initiatives; pleasing in light of the challenging
backdrop presented by the global pandemic. Our business continues
to show its resilience both in operational and financial terms and
we have grown our customer base, including the acquisition of a new
$8 billion US-based Dynamic Hedging mandate.
"Diversification through product innovation is central to our
growth plan, and we're excited about our collaboration with a
European wealth manager to build and manage a Currency Impact Fund
which we expect to be seeded with several hundred million in the
first calendar quarter of 2021. We view this highly innovative
offering as a market-first, enabling us to tap into this
fast-expanding market and take the lead in our sector.
"Our reinvigorated growth strategy necessitates investment in
sales capabilities, technology and infrastructure; we are investing
both to add more functionality as well as to bring
efficiencies.
"The extreme volatility we witnessed earlier in the year has
served to underline to all market participants the benefits of a
specialist risk management offering. Our new business pipeline
reflects the growth opportunity and I feel confident the business
will build on the positive momentum and growth investment as we
progress into 2021."
[1] As a currency manager, Record manages only the impact of
foreign exchange and not the underlying assets, therefore its
"assets under management" are notional rather than real. To
distinguish this from the AUM of conventional asset managers,
Record uses the concept of assets under management equivalents
"AUME" and by convention this is quoted in US dollars. A full
definition of AUME is provided at the end of this document.
Analyst Presentation
There will be a presentation for analysts at 9.30am on Tuesday
24 November 2020 held via a Zoom call. Please contact the team at
Buchanan via record@buchanan.uk.com for further details. A copy of
the presentation will be made available on the Group's website at
www.recordcm.com .
For further information, please contact:
Record plc +44 (0) 1753 852222
Neil Record - Chairman
Leslie Hill - Chief Executive Officer
Steve Cullen - Chief Financial Officer
Buchanan +44 (0) 20 7466 5000
Giles Stewart
Henry Wilson
George Beale
Chief Executive Officer's statement
We report a resilient first half of the financial year in terms
of both our operational and our financial performance, with
considerable progress having been made against those strategic
objectives identified in our last Annual Report:
Diversification - in close collaboration with a European wealth
manager we are developing an innovative FX solution in the area of
ESG and Impact Investment. We are in the process of setting up a
Dublin-based fund for the new strategy which we are excited about
and which will attract active management fees. We expect the fund
to be ready to receive a seed investment of several hundred million
in the first quarter of 2021.
Modernisation - we have adopted a new data capture and
transformation platform, Xceptor, which brings efficiencies and
improves our client offering. We will roll out this software more
broadly to modernise our processes across the business.
Succession - a new share-based incentive platform was launched
during the period (the Record Joint Share Ownership Plan ("JSOP"))
aimed at key staff below Board level.
Business development
As set out in our Annual Report 2020, our strategy is based upon
three fundamental cornerstones: quality client experience,
technology and innovation, and talent development, against which
our business development over the six-month period can be
assessed.
1. Quality client experience
Despite covid-19, we have operated as close to "business as
usual" as possible. This includes continuing to provide the highest
levels of service and communication in line with the continued
expectations of our clients, which serves to reinforce our
long-standing and trusted relationships. Alongside new business in
new products, such relationships form an important part of our
growth plans and can lead to further diversification and growth in
existing products and services, as illustrated by the new Dynamic
Hedging mandate win described further below.
New hires in our client-facing team and the introduction of
third party distributors during the period have added to our
knowledge, experience and reach. We also continue to act in
partnership alongside certain of our clients to collaborate on new
ideas and to innovate new products and strategies in response to
specific client demand. This approach enhances our client offering
and helps to build our current and new relationships, ultimately
expanding the base from which we operate and the products and
services we provide. Our client numbers continue to grow, and we
added a further two clients, ending the period at 74.
2. Technology and innovation
Closely linked with our aim to achieve a quality client
experience is our focus on technology and innovation. Our view on
technology is now broader and less insular than has historically
been the case, and we remain committed to investing in technology
where it can enhance our product offering or improve
efficiency.
Xceptor will improve our client offering in many areas and is
one of the tools to future -- proof the business against the fee
compression we know is now part of the asset management landscape.
I expect this development to yield more exciting results during the
whole of next year as well. More fundamental projects, for example
reviewing how we use, handle and centrally store our data, are also
underway. Each completed project takes us a step closer to making
our business more efficient, resilient and scalable.
In terms of innovation, our new Currency Impact Fund is expected
to start in early 2021 with an initial allocation of several
hundred million at active fee rates. This is a strategically
important development for us; ESG/Impact investment programmes will
be of interest to many clients and prospective clients going
forward and we plan to capitalise on this, as well as building our
relationship with this client further.
3. Talent development
We continue to grow our management team both organically and
through external hires. Promotions during the period included an
appointment made at senior level to lead strategic initiatives
aimed at transforming business processes and modernising systems
across the business, including the incorporation of new
technology.
Having identified key individuals within the business with the
capability to grow and manage the business in the future, it is
important they feel incentivised and are retained. Allocations
under our new JSOP scheme were made to certain key individuals in
the period using a proportion of the 4 million shares sold by Neil
Record to the Employee Benefit Trust ("EBT") in support of our
plans to focus on generational change supported by increased share
ownership and alignment.
Assets Under Management Equivalents ("AUME")
AUME has increased over the period by 12.5% in USD terms to
$65.9 billion, and by 7.8% in sterling terms to GBP51.0
billion.
Net inflows from existing clients into higher revenue-margin
Dynamic Hedging totalled $0.5 billion and net outflows from
lower-margin Passive Hedging were $0.8 billion, resulting in
aggregate net outflows for the period of $0.3 billion. Following
the impact on our AUME of the falls in global markets arising from
covid-19 in the final quarter of last year (- $4.5 billion), the
subsequent recovery in markets increased AUME by $4.1 billion, and
exchange rate movements and changes in mandate volatility targeting
added a further $3.5 billion.
On 21 September 2020 we announced the award of a new Dynamic
Hedging mandate of approximately $8 billion, which has since
started and will add material scale to our AUME over time, whilst
offering diversification and longevity benefits within our suite of
currency hedging offerings. Further detail regarding AUME can be
found in the "AUME development" section.
Financial results
We continue to invest in our people and technology with our
focus being on the diversification of our products and services,
and the modernisation of our systems and processes. Such investment
will add efficiency and scale to our operations over the medium
term, although as expected the lag between initial investment and
delivery of the benefits associated with increased efficiency and
diversification has reduced profitability over the short term.
Notwithstanding growth in revenue of 4% to GBP11.8 million
(H1-20: GBP11.4 million), increases in operating costs of 10% to
GBP9.0 million (H1-20: GBP8.2 million) resulted in a reduced
operating margin for the period of 22% (H1-20: 27% and
FY-20: 30%). Profit before tax decreased by 18% to GBP2.6
million compared to the first half of last year (H1 -- 20: GBP3.2
million), and by 43% versus the second half of last year (H2-20:
GBP4.6 million), the latter difference being largely attributable
to the absence of performance fees. No performance fees were earned
in the period (H1-20: GBPnil and H2-20: GBP1.8 million).
Further details on the financial performance in the period are
contained in the Financial review.
Investment performance
Investment performance for our return-seeking strategies over
the period was disappointing, with both the Multi-Strategy and
Dynamic Macro Currency products returning -1.85% and -3.78%
respectively. Market conditions also proved difficult in terms of
the performance of our enhanced Passive Hedging product which
delivered a small positive performance of 0.02% relative to a fixed
tenor benchmark.
More detail on the market environment and product investment
performance can be found in the Market review and the Operating
review sections respectively.
Capital management and dividends
Despite the challenging backdrop of covid-19 for the duration of
this six-month period, neither our capital management policy nor
our dividend policy has changed.
Our capital policy aims to ensure the retention of capital
equivalent to approximately one year's worth of future estimated
overheads excluding variable remuneration plus capital assessed as
required for regulatory and working capital purposes and for
investing in new opportunities for the business. Our dividend
policy reinforces the protection of our capital base by targeting a
level of dividend which is at least covered by annual earnings, and
which allows for sustainable dividend growth in line with
profitability.
Notwithstanding the decrease in half -- year earnings to 1.10
pence per share, the Board remains confident in the ability of the
business to deliver on its planned strategy and to achieve growth.
An unchanged interim dividend of 1.15 pence per share will be paid
on 31 December 2020 to shareholders on the register at 4 December
2020.
Brexit
We remain confident of being able to continue to successfully
and fully service our current EU27 clients, which account for 16%
of our AUME at period end, and contributed approximately 13% of our
revenues for the period. We cannot afford to wait or to make
assumptions regarding the final outcome of negotiations, and
therefore have contingency plans in place in the form of an
EU-based subsidiary firm to ensure that ultimately we retain our
ability to market to prospective EU27 -- based clients going
forward.
Outlook
During the last six months we have been working very hard, both
on the diversification of our product and service offering and also
on the modernisation of our business. These efforts are now
starting to bear fruit and each step moves us closer towards taking
the business to the next level, as I alluded to in the Annual
Report 2020.
I am personally very excited by the opportunities currently
available to the business to diversify and grow. We will continue
both to pursue those opportunities and in our efforts to build upon
the success we've seen over the last six months. We also plan to
continue our programme of incentivising and empowering our young
talent with further awards and promotions in 2021 - this is a
crucial part of enhancing and developing our senior team for the
future.
Leslie Hill
Chief Executive Officer
23 November 2020
Interim management review
Market review
The six months to 30 September 2020 were defined by the
economic, financial, and policy consequences of covid-19. Central
banks across both developed and emerging markets engaged in broad
monetary easing, which included policy rate cuts, quantitative
easing, and in some places yield curve control. The European
Central Bank cut its policy rate further into negative
territory.
A spike in global demand for dollar liquidity in March, related
to USD-denominated liabilities and other funding needs, caused
volatility in the USD. Thanks to the easing of funding pressures,
access to dollar liquidity and credit was expanded through Federal
Reserve swap and repo facilities, multilateral lending, bond
issuance, and significant growth in USD bank loans.
Asset markets, economic output and employment data, and
restrictions on movement and activity have all been stop -- start,
with each country largely on its own timeline of recovery.
Financial markets have reacted primarily to new information in the
fiscal and monetary policy space, as well as to news about the
virus's spread and potential vaccines.
Economic policy in many countries has gained a more significant
nationalistic orientation, with primary effects in trade and fiscal
policy. Monetary policy is also undergoing substantial
transformations which challenge the policy doctrine of recent
decades. The use of new monetary tools such as yield curve control
in Australia, the significant expansion in central bank balance
sheets in many countries, revisions in the Federal Reserve's
inflation targeting framework, and negative rates in some
jurisdictions are all components of a global policy zeitgeist to
reduce real yields. In contravention of the orthodoxy of central
bank independence, there is now more attention paid to the
incentives central banks have in supporting government spending and
borrowing.
Operating review
The half year has been dominated by the global uncertainty and
disruption arising as a result of covid-19, and a summary of the
specific impact across our business is given below.
Our clients
Record's clients are institutional and of high quality with
strong, long -- standing and trusted relationships built over many
years. Record has not lost any clients as a result of the covid-19
pandemic and has maintained strong lines of communication,
reinforcing the quality of our service offering. A large proportion
of our current client base by assets (c. 90%) is represented by
hedging products. The decision to hedge is a strategic decision
usually taken over a longer-term horizon and seeks to reduce the FX
risk associated with our clients' overseas assets. For this reason
such mandates prove to have good longevity, and volatility in times
of market stress only serves to further reinforce the benefit of
such risk mitigation strategies. The quality of our clients means
that we have not suffered from any unpaid fees for over 20 years
through various market crises and cycles, and we do not expect this
to change under the current circumstances.
Our people
Record has successfully transitioned to full remote working
without detriment to our clients or employees. We continue to
closely monitor the well-being and motivation of all of our staff
and to listen and respond to their feedback and requirements,
including ensuring they are sufficiently equipped at home with the
necessary IT equipment to facilitate the requirements of their
role. The office environment has been changed to incorporate
Government requirements and guidelines for those employees for whom
continuing to work from the office is more suitable, including
considerations around social distancing, travel, increased office
hygiene and other measures. Record has not seen any employee
attrition as a direct result of the crisis, has not cut salaries
and does not anticipate utilising any of the Government's job
retention or loan schemes for businesses, and remains fully
independent.
Our technology and operations
Prior to the Government's full lockdown in March, Record's
operational teams had already been split between the disaster
recovery ("DR") site and the Windsor office, and this was quickly
changed to full working from home for all employees, including all
operational teams subsequent to the lockdown measures being
introduced. Throughout these phases full business continuity was
maintained. Remote access systems have been strengthened and
additional IT equipment has been sourced for individuals to assist
with facilitating the required working environment from home.
Our governance and oversight
Virtual meetings replaced physical meetings in the office and
broadly follow the same pattern as prior to the crisis, although
the frequency for some meetings was initially increased, for
example more regular Audit and Risk Committee meetings to review
risk and controls during the height of the first wave, and weekly
Executive team catch -- ups to discuss employee well -- being,
market behaviour and other management issues. Due to revised
governmental guidance responding to the more recent increase in
covid-19 cases (the "second wave"), our plans to start
transitioning people back to the office during September were
halted and the vast majority of our employees continue to work from
home and are able to continue to do so until the situation
changes.
Our risk and management reporting framework continues to
function as expected, albeit with some amendments to the compliance
monitoring programme to allow more focus on deemed higher-risk
areas as would be expected under such circumstances.
Our business model and profitability
With the exception of those issues discussed above, any further
impact of covid-19 on Record's business model has been limited. We
haven't seen any direct material increase in costs linked to
covid-19 (in fact we've seen a decrease in certain costs e.g.
travel and accommodation) and our balance sheet remains strong.
Whilst we haven't seen any direct material outflows as a result of
covid-19, the link of some of our clients' mandates with other
markets, such as equity and fixed income, means our AUME is
susceptible to movements in such markets, although to a more
limited extent, as was illustrated by the fall of our AUME by $4.5
billion (-7%) in the quarter ended 31 March 2020 linked to market
movements. However, the subsequent recovery in markets over the
six-month period of +$4.1 billion has recouped over 90% of this
decrease, and alongside the impact of FX and volatility targets of
+$3.5 billion and negligible net outflows of $0.3 billion, our AUME
has increased by +12% over the six months.
In conclusion, our business has responded well to the changes
enforced by the covid-19 pandemic and continues to do so. We have
achieved continuity in operational and client servicing matters,
and maintained a full team without the need for additional funding
or Government assistance. We believe that we are capable of
continuing to operate as near to "business as usual" as is possible
under the current circumstances and for the foreseeable future.
Brexit
The UK formally left the European Union ("EU") on 31 January
2020 and entered the transition period, during which it continues
to follow EU rules whilst the negotiations continue on the future
relationship. Whilst the UK Government has previously committed to
the conclusion of the transition period by the end of 2020, this
was prior to the emergence of covid-19 and a full understanding of
its effects on the global economy and the distraction from, and
consequent delay to, Brexit negotiations. At the time of writing,
it still remains uncertain on how the negotiations on the future
relationship will conclude.
What this means for our business
Record has performed a client-by-client assessment of the
regulatory basis on which we currently provide services to EU27
clients. As a result, and in addition to industry -- wide measures
such as the Memoranda of Understanding agreed between the Financial
Conduct Authority and EU regulators previously announced, at the
time of writing we are confident we will be able to continue to
provide services to all current EU27 clients post-Brexit, even in
the event of a "hard Brexit" with no extension to the transition
period or no other equivalence arrangements.
Subject to negotiations, it remains possible that we would be
constrained in marketing our products and services to new clients
in certain EU27 countries, although even this constraint is
moderated by enabling legislation in many such countries, allowing
authorised UK firms to continue to market to professional clients.
Consequently, plans to establish an EU-based subsidiary to
eliminate any such remaining constraints are well underway, and we
do not anticipate any significant long-term reduction in our
ability to be able to market to potential EU27 clients going
forward.
Hedging
Our hedging products are predominantly systematic in nature. The
effectiveness of each client mandate is assessed regularly and
adjustments are made when necessary in order to respond to changing
market conditions or to bring the risk profile of the hedging
mandate in line with the client's risk tolerance.
Passive Hedging
Record has developed an enhanced Passive Hedging service, which
aims to reduce the cost of hedging by introducing new flexibility
into the implementation of currency hedges without changing the
hedge ratio. While the strategy is partly systematic, the episodic
nature of many opportunities exploited by the strategy means it
requires a higher level of discretionary oversight than has
historically been associated with Passive Hedging.
Early in 2020, central banks across the globe, especially the US
Federal Reserve, were forced to cut interest rates in response to
the covid-19 pandemic. This had a significant negative performance
impact for our clients. This was paired with higher costs of
trading (elevated FX forward spreads) that made managing hedging
positions more costly. Thus trading frequency dropped, and hedges
were positioned more defensively.
From May onwards, these FX spreads had normalised and the client
hedging structures were once again able to be managed with more
tactical robustness. Since then, performance has improved in a
stable manner as we continue to operate in an environment with more
discretionary opportunities present.
Half -- Return
year since
return inception
------------------------------------------------------------------------------------- ------- ----------
Value added by enhanced Passive Hedging programme relative to a fixed-tenor benchmark 0.02% 0.09% p.a.
------------------------------------------------------------------------------------- ------- ----------
Dynamic Hedging
During the period, US-based Dynamic Hedging clients experienced
a weakening of the US dollar against developed market currencies.
The Dynamic Hedging programmes responded as expected; hedge ratios
varied systematically in response to currency movements while
hedging returns in the programmes were negative.
Half -- Return
year since
return inception
---------------------------------------- ------- ----------
Value added by Dynamic Hedging programme (0.57%) 0.38% p.a.
---------------------------------------- ------- ----------
Currency for Return
Record's Currency for Return suite of products includes both
systematic and discretionary investment styles. The systematic
offering combines five strategies under the Currency Multi --
Strategy product, whilst the Dynamic Macro Currency product uses a
more discretionary approach.
Currency Multi-Strategy
Record's principal Currency for Return product during the period
was Currency Multi-Strategy. This combines a number of diversified
return streams, which include:
-- Forward Rate Bias ("FRB", also known as Carry) and Emerging
Market ("EM") strategies which are founded on market risk premia
and as such perform more strongly in "risk on" environments;
and
-- Momentum, Value and Range -- Trading strategies which are
more behavioural in nature, and as a result are less risk
sensitive.
Currency Multi-Strategy returned negatively during the period
which was largely driven by an underperforming Momentum strand that
offset positive returns from FRB10 and EM. Momentum came under
pressure as the multi -- month risk off trend that was prevalent in
the lead-up to March 2020 reversed in the months as Developed
Market ("DM") policymakers brought in significant monetary and
fiscal support. EM contributed positively as increased mobility,
some resumption in economic activity and elevated levels of
multilateral lender support has helped EM currencies to bottom out
and start to recover from their crisis-lows. In a similar vein,
FRB10 saw positive returns from rebounding risk -- on currencies in
DM universe - in particular the Australian and New Zealand
dollar.
Dynamic Macro Currency
The Dynamic Macro Currency strategy seeks absolute,
risk-adjusted returns by identifying variant perceptions within
developed and emerging currency market currencies.
A variant perception is the gap between the strategy's
expectation of proper market pricing and the expectations and
collective pricing of market participants.
Through discretionary decisions augmented by a structured and
systematic methodology, Dynamic Macro Currency targets a positive,
right-skewed distribution of returns in a variety of market
conditions, and offers uncorrelated returns with traditional asset
classes and other hedge fund strategies.
The Dynamic Macro Currency strategy utilises a multi --
disciplined macro investment approach to developed and emerging
currency markets. A five-pillared proprietary process integrates
macroeconomics, market neurology, and quantitative price metrics
with disciplined risk management. The portfolio is innovatively
structured and managed to implement investment views and provide an
asymmetrical return profile.
In the past six months, Dynamic Macro Currency returned
negatively as gains in the first quarter of 2020 from our early
recognition of covid-19's larger-than-priced impact were tempered
by subsequent market retracements and hopes for a "V"-shaped global
economic recovery. The actual, protracted recovery since then has
been headline-driven and benefited a more tactical approach to
markets, with the strategy making gains in both developed and
emerging market pairs, which helped pay for core long-dated long US
dollar option positions. Towards the end of the period, the
strategy's focus turned to the US presidential election, with the
expected volatility being compounded by challenges of corporate
solvency and its feed -- through to employment, confidence, and
spending, as fiscal stimulus wanes.
Half -- Return Volatility
year since since
return inception inception
Index/composite returns Scaling % % p.a. % p.a.
----------------------------------- ------- ------- --------- ----------
Currency Multi-Strategy Fund(1) 1.85 (2.46%) (5.31%) 8.28%
Record Multi-Strategy Composite(2) (1.85%) 0.33% 3.12%
----------------------------------- ------- ------- --------- ----------
Half -- Return Volatility
year since since
return inception inception
Returns % % p.a. % p.a.
----------------------- ------- --------- ----------
Dynamic Macro Currency (3.78%) 3.88% 9.20%
----------------------- ------- --------- ----------
1. Record Currency Multi-Strategy Fund return data is since
inception in February 2018, GBP base (unaudited).
2. Record Multi-Strategy Composite return data is since
inception in July 2012, showing excess returns data gross of fees
in USD base and scaled to a 4% target volatility (unaudited).
Scaling
The Currency for Return product group allows clients to select
the level of exposure they desire in their currency programmes. The
segregated mandates allow clients to select the level of scaling
and/or the volatility target. The pooled funds have historically
offered clients a range of scaling and target volatility
levels.
It should be emphasised that in this case "scaling" refers to
the multiple of the aggregate notional value of forward contracts
in the currency programme, to the segregated mandate size or the
pooled fund's net assets. This is limited by the willingness of
counterparty banks to take exposure to the segregated client or
pooled fund. The AUME of those mandates where scaling or a
volatility target is selected is represented in Record's AUME at
the scaled value of the mandate, as opposed to the segregated
mandate size or the pooled fund's net assets.
AUME development
AUME increased over the period by 12% to $65.9 billion in US
dollar terms, and increased in sterling terms by 8% to GBP51.0
billion. The AUME movement over the six-month period is analysed as
follows:
AUME movement analysis in the six months to 30 September
2020
$bn
------------------------------------------------------- -----
AUME at 1 April 2020 58.6
Net client flows (0.3)
Equity and other market impact 4.1
Foreign exchange impact and mandate volatility scaling 3.5
------------------------------------------------------- -----
AUME at 30 September 2020 65.9
------------------------------------------------------- -----
Net outflows of $0.3 billion during the period were represented
by $0.5 billion net inflows from existing Dynamic Hedging clients
and net outflows of $0.8 billion from Passive Hedging.
Product mix
The product mix has remained broadly constant during the period,
as shown in the table below.
AUME composition by product
30 Sep 20 30 Sep 19 31 Mar 20
----------- -----------
$bn % $bn % $bn %
-------------------- ------ --- ------ --- ------ ---
Passive Hedging 55.6 85 50.4 84 50.3 86
Dynamic Hedging 3.2 5 3.2 5 2.5 4
Currency for Return 3.4 5 2.9 5 2.6 4
Multi-product 3.5 5 3.1 5 3.0 5
Cash and other 0.2 - 0.3 1 0.2 1
-------------------- ------ --- ------ --- ------ ---
Total 65.9 100 59.9 100 58.6 100
-------------------- ------ --- ------ --- ------ ---
Equity and other market performance
Record's AUME is affected by movements in equity and other
markets because Passive and Dynamic Hedging mandates, and some of
the Multi-product mandates, are linked to equity holdings or other
asset types such as bonds or real estate.
Additional details on the composition of assets underlying the
Hedging and Multi-product mandates are provided below to help
illustrate more clearly the impact of equity and fixed income
market movements on these mandate sizes.
Class of assets underlying mandates by product as at 30
September 2020
Fixed
Equity income Other
% % %
---------------- ------ ------ -----
Passive Hedging 30 39 31
Dynamic Hedging 92 0 8
Multi-product 0 0 100
---------------- ------ ------ -----
Forex
Approximately 87% of the Group's AUME is non -- US dollar
denominated. Therefore, foreign exchange movements may have an
impact on AUME when expressing non -- US dollar AUME in US dollars,
although this movement does not have an equivalent impact on the
sterling value of fee income. Exchange rate movements increased
AUME by $3.1 billion in the period and changes to mandate
volatility targeting added a further $0.4 billion.
Client numbers
Client numbers increased by two since the financial year end,
closing at 74 clients (H1-20: 70).
Financial review
The Group remains resilient in the face of a challenging half
year due to covid -- 19 and through a period of strategic change.
As expected, the financial impact of such change has been felt in
the form of reduced profitability in the short term. However,
strong progress has been made in the period in terms of both
existing and new products and confirmed future inflows, the
benefits of which we expect to start seeing in the second half of
the financial year. The Group remains independent and profitable
supported by its strong and liquid balance sheet.
Overview
Operating profit for the period of GBP2.6 million was GBP0.5
million lower than the equivalent period last year and reflects
increased levels of investment in people and technology, the full
benefits from which we would expect to see in subsequent periods.
Total revenue increased by 4% to GBP11.8 million (H1 -- 20: GBP11.4
million) and operating expenses, excluding variable remuneration,
increased by 13% to GBP7.7 million. Variable remuneration reduced
to GBP1.3 million (H1 -- 20: GBP1.4 million), with the operating
profit margin decreasing to 22% (H1 -- 20: 27%) and profit before
tax fell by 18% to GBP2.6 million (H1 -- 20: GBP3.2 million).
Revenue
Management fees increased by 1% to GBP11.2 million over the
equivalent period last year (H1-20: GBP11.1 million) but decreased
by 6% compared to the second half of last year (H2 -- 20: GBP12
million).
No performance fees were earned in the period (H1 -- 20: GBPnil
and H2-20: GBP1.8 million).
Passive Hedging management fees of GBP6.0 million were slightly
higher than over the equivalent period last year (H1 -- 20: GBP5.9
million) and broadly flat compared to the second half of last year
(H2-20: GBP6.1 million).
Dynamic Hedging management fees of GBP1.9 million were slightly
lower than the GBP2 million for both H1-20 and H2 -- 20 due to the
timing of inflows over the period and the consequent lower average
AUME.
Currency for Return management fees remained broadly consistent
with the same period last year (H1-20: GBP0.9 million) and slightly
reduced on the second half of last year as a result of currency
movements (H2-20: GBP1.1 million).
Management fees of GBP2.4 million from the Multi-product
category remained broadly consistent with the same period last year
(H1-20: GBP2.3 million). The 16% decrease in management fees versus
the second half of last year (H2-20: GBP2.8 million) was
predominantly due to the temporary tactical bespoke mandate inflow
announced in December which subsequently reversed in the final
quarter of last year.
Other currency services income increased to GBP0.6 million
(H1-20: GBP0.3 million) reflecting an increase in tactical currency
management services to existing clients.
Revenue analysis (GBPm)
Six months Six months Year
ended ended ended
30 Sep 30 Sep 31 Mar
20 19 20
---------------------- ---------- ---------- ------
Management fees
Passive Hedging 6.0 5.9 12.0
Dynamic Hedging 1.9 2.0 4.0
Currency for Return 0.9 0.9 2.0
Multi-product 2.4 2.3 5.1
---------------------- ---------- ---------- ------
Total management fees 11.2 11.1 23.1
---------------------- ---------- ---------- ------
Performance fees - - 1.8
Other investment
services income 0.6 0.3 0.7
---------------------- ---------- ---------- ------
Total revenue 11.8 11.4 25.6
---------------------- ---------- ---------- ------
Other investment services income consists of fees from ancillary
investment management services.
Average management fee rates by product (bps p.a.)
The average management fee rates have remained broadly constant
over the six months ended 30 September 2020. A number of Passive
Hedging clients elected to move from a management fee only to a
lower management fee with a performance-related fee, which will
have the impact of decreasing average Passive Hedging management
fee rates in subsequent periods. Additionally, the new Dynamic
Hedging mandate of $8 billion announced in September will have the
effect of decreasing the average Dynamic Hedging management fee
rate as it builds over time.
Expenditure
Expenditure analysis (GBPm)
Six months Six months Year
ended ended ended
30 Sep 30 Sep 31 Mar
20 19 20
-------------------------------------------------------- ---------- ---------- ------
Personnel costs 5.0 4.2 8.6
Non-personnel costs 2.7 2.6 5.7
-------------------------------------------------------- ---------- ---------- ------
Administrative expenditure excluding Group Profit Share 7.7 6.8 14.3
Group Profit Share 1.3 1.4 3.5
-------------------------------------------------------- ---------- ---------- ------
Total administrative expenditure 9.0 8.2 17.8
-------------------------------------------------------- ---------- ---------- ------
Other income and expenditure - - (0.1)
-------------------------------------------------------- ---------- ---------- ------
Total expenditure 9.0 8.2 17.7
-------------------------------------------------------- ---------- ---------- ------
In line with the change in strategy, costs have increased,
reflecting investment in sales and client support activities and
new technology. Total administrative expenditure for the period of
GBP9.0 million increased by GBP0.8 million compared with the
equivalent prior year period (H1-20: GBP8.2 million) and decreased
by GBP0.6 million versus the second half of last year (H2-20:
GBP9.6 million).
Personnel costs of GBP5.0 million excluding Group Profit Share
("GPS") increased by 19% (GBP0.8 million) versus the first half of
last year, and by 14% over the second half (H2 -- 20: GBP4.4
million). This represents the investment made in personnel through
both external hires and internal promotions leading to a slightly
higher average headcount at higher average costs per person over
the period.
Non-personnel costs for the period of GBP2.7 million were
broadly in line with the equivalent period last year. Reductions in
one-off project costs including technical consultancy and
professional fees led to a 13% decrease versus the second half of
last year (H2-20: GBP3.1 million) assisted by lower costs
associated with travel and accommodation linked to the impact of
covid-19.
Group Profit Share ("GPS") scheme
The cost of the GPS scheme is GBP1.3 million for the period,
decreasing in line with operating profit. The GPS cost is
calculated as 33% of operating profits, which is within the
previously established range of 25% to 35% of pre-GPS operating
profit.
Cash flow
The Group generated GBP2.6 million of cash from operating
activities after tax during the period (H1-20: GBP3.6 million).
Taxation paid during the period increased to GBP0.8 million
compared to GBP0.7 million for the same period last year.
The Group paid dividends totalling GBP3.1 million in the period
(H1-20: GBP3.6 million), more information for which is given in
note 5 to the financial statements.
Dividends and capital
In line with the Board's capital and dividend policy, the Group
will pay an interim dividend of 1.15 pence per share in respect of
the six-month period, equating to a distribution of GBP2.3 million,
following which the business will retain cash and money market
instruments on the balance sheet which are significantly in excess
of financial resource requirements required for regulatory
purposes.
The Group has no debt and its capital and dividend policy aims
to ensure continued balance sheet strength for the Group.
Shareholders' funds were GBP25.7 million at 30 September 2020
(H1-20: GBP26.4 million).
Principal risks and uncertainties
The principal risks currently facing the Group and those that we
anticipate the Group will be exposed to in the short term remain
the same as those outlined in the Annual Report 2020.
These risks are:
-- Strategic risk - including the risk of failure to deliver
strategy and margin compression risk.
-- Business risk - including concentration risk, people and
employment risk, the risk of regulatory change (including that
linked to Brexit) and market liquidity risk linked to covid-19.
-- Operational risk - including technology and information
security risk and the risk associated with the operational control
environment.
-- Investment risk - the risk of product underperformance.
Cautionary statement
This Interim Report contains certain forward-looking statements
with respect to the financial condition, results, operations and
business of Record. These statements involve risk and uncertainty
because they relate to events and depend upon circumstances that
will occur in the future. There are a number of factors that could
cause actual results or developments to differ materially from
those expressed or implied in this Interim Report. Nothing in this
Interim Report should be construed as a profit forecast.
Statement of Directors' responsibilities
The interim financial report is the responsibility of the
Directors, who confirm that to the best of their knowledge:
-- the condensed set of consolidated financial statements has
been prepared in accordance with IAS 34 "Interim Financial
Reporting" as endorsed and adopted by the EU;
-- the interim management review includes a fair review of the information required by:
-- DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of consolidated financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
-- DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the Annual Report 2020 that could do so. Related party
transactions are disclosed in note 12.
The Directors of Record plc are listed on the Record plc website
at www.recordcm.com/en/about-us/our-people/board-of-directors/
Neil Record
Chairman
Steve Cullen
Chief Financial Officer
23 November 2020
Independent review report to Record plc
Introduction
We have been engaged by the Group to review the condensed set of
financial statements in the Interim Report for the six months ended
30 September 2020 which comprise the consolidated statement of
comprehensive income, the consolidated statement of financial
position, the consolidated statement of changes in equity, the
consolidated statement of cash flows and the notes to the financial
statements, including a summary of significant accounting
policies.
We have read the other information contained in the Interim
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The Interim Report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the Interim Report in accordance with the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards ("IFRSs") as adopted by the European Union. The
condensed set of financial statements included in this half --
yearly financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Group a conclusion on
the condensed set of financial statements in the Interim Report
based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Financial Reporting Council for use
in the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the Interim Report for the six months ended 30 September 2020 is
not prepared, in all material respects, in accordance with
International Accounting Standard 34, as adopted by the European
Union, and the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Use of our report
Our report has been prepared in accordance with the terms of our
engagement to assist the Group in meeting its responsibilities in
respect of half-yearly financial reporting in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. No person is
entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do
so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such
liability.
BDO LLP
Chartered Accountants
London
23 November 2020
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Consolidated statement of comprehensive income
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 Sep 30 Sep 31 Mar
20 19 20
Note GBP'000 GBP'000 GBP'000
--------------------------------------------------------------------- ---- ---------- ---------- --------
Revenue 3 11,838 11,385 25,563
Cost of sales (213) (119) (255)
--------------------------------------------------------------------- ---- ---------- ---------- --------
Gross profit 11,625 11,266 25,308
Administrative expenses (9,016) (8,232) (17,741)
Other income or expense (36) 50 82
--------------------------------------------------------------------- ---- ---------- ---------- --------
Operating profit 2,573 3,084 7,649
Finance income 42 92 146
Finance expense (22) (9) (58)
--------------------------------------------------------------------- ---- ---------- ---------- --------
Profit before tax 2,593 3,167 7,737
Taxation (449) (652) (1,365)
Profit after tax 2,144 2,515 6,372
--------------------------------------------------------------------- ---- ---------- ---------- --------
Total comprehensive income for the period 2,144 2,515 6,372
--------------------------------------------------------------------- ---- ---------- ---------- --------
Profit and total comprehensive income for the period attributable to
Owners of the parent 2,151 2,543 6,420
Non-controlling interests 11 (7) (28) (48)
--------------------------------------------------------------------- ---- ---------- ---------- --------
2,144 2,515 6,372
--------------------------------------------------------------------- ---- ---------- ---------- --------
Earnings per share for the period (expressed in pence per share)
Basic earnings per share 4 1.10p 1.29p 3.26p
Diluted earnings per share 4 1.10p 1.29p 3.26p
--------------------------------------------------------------------- ---- ---------- ---------- --------
Consolidated statement of financial position
Unaudited Unaudited Audited
As at As at As at
30 Sep 30 Sep 31 Mar
20 19 20
Note GBP'000 GBP'000 GBP'000
---------------------------------------------------- ---- --------- --------- -------
Non-current assets
Intangible assets 449 357 470
Right -- of -- use assets 931 1,401 1,175
Property, plant and equipment 686 838 751
Investments 6 2,759 1,152 2,472
---------------------------------------------------- ---- --------- --------- -------
Total non-current assets 4,825 3,748 4,868
---------------------------------------------------- ---- --------- --------- -------
Current assets
Trade and other receivables 7,276 6,678 8,704
Derivative financial assets 9 158 132 193
Money market instruments with maturities > 3 months 7 12,491 13,860 7,958
Cash and cash equivalents 7 6,848 9,576 14,294
---------------------------------------------------- ---- --------- --------- -------
Total current assets 26,773 30,246 31,149
---------------------------------------------------- ---- --------- --------- -------
Total assets 31,598 33,994 36,017
---------------------------------------------------- ---- --------- --------- -------
Current liabilities
Trade and other payables (2,422) (2,629) (3,009)
Corporation tax liabilities (349) (604) (601)
Lease liabilities (526) - (544)
Financial liabilities 6 (1,800) (2,721) (2,191)
Derivative financial liabilities 9 (35) (58) (610)
---------------------------------------------------- ---- --------- --------- -------
Total current liabilities (5,132) (6,012) (6,955)
---------------------------------------------------- ---- --------- --------- -------
Non-current liabilities
Deferred tax liabilities (30) (61) (86)
Provisions (200) - (200)
Lease liabilities (377) (1,391) (615)
---------------------------------------------------- ---- --------- --------- -------
Total non-current liabilities (607) (1,452) (901)
---------------------------------------------------- ---- --------- --------- -------
Total net assets 25,859 26,530 28,161
---------------------------------------------------- ---- --------- --------- -------
Equity
Issued share capital 10 50 50 50
Share premium account 2,289 2,243 2,259
Capital redemption reserve 26 26 26
Retained earnings 23,369 24,059 25,694
---------------------------------------------------- ---- --------- --------- -------
Equity attributable to owners of the parent 25,734 26,378 28,029
---------------------------------------------------- ---- --------- --------- -------
Non-controlling interests 11 125 152 132
---------------------------------------------------- ---- --------- --------- -------
Total equity 25,859 26,530 28,161
---------------------------------------------------- ---- --------- --------- -------
Approved by the Board on 23 November 2020 and signed on its
behalf by:
Neil Record
Chairman
Steve Cullen
Chief Financial Officer
Consolidated statement of changes in equity
Equity
attributable
Called
-- up Share Capital to owners Non-
share premium redemption Retained of the controlling Total
capital account reserve earnings parent interests equity
Unaudited Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
As at 31 March 2019 50 2,243 26 25,022 27,341 60 27,401
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
IFRS 16 opening adjustment - - - (97) (97) - (97)
Profit and total comprehensive
income for the period - - - 2,543 2,543 (28) 2,515
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
Dividends paid 5 - - - (3,619) (3,619) - (3,619)
Issue of shares in subsidiary - - - - - 120 120
Own shares acquired by EBT - - - (115) (115) - (115)
Release of shares held by EBT - - - 340 340 - 340
Share-based payment reserve movement - - - (15) (15) - (15)
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
Transactions with shareholders - - - (3,409) (3,409) 120 (3,289)
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
As at 30 September 2019 50 2,243 26 24,059 26,378 152 26,530
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
IFRS 16 opening adjustment - - - (1) (1) - (1)
Profit and total comprehensive
income for the period - - - 3,877 3,877 (20) 3,857
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
Dividends paid 5 - - - (2,269) (2,269) - (2,269)
Own shares acquired by EBT - - - (905) (905) - (905)
Release of shares held by EBT - 16 - 631 647 - 647
Share-based payment reserve movement - - - 302 302 - 302
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
Transactions with shareholders - 16 - (2,241) (2,225) - (2,225)
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
As at 31 March 2020 50 2,259 26 25,694 28,029 132 28,161
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
Profit and total comprehensive
income for the period - - - 2,151 2,151 (7) 2,144
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
Dividends paid 5 - - - (3,068) (3,068) - (3,068)
Own shares acquired by EBT - - - (1,589) (1,589) - (1,589)
Release of shares held by EBT - 30 - 419 449 - 449
Share-based payment reserve movement - - - (238) (238) - (238)
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
Transactions with shareholders - 30 - (4,476) (4,446) - (4,446)
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
As at 30 September 2020 50 2,289 26 23,369 25,734 125 25,859
------------------------------------ ---- ------- ------- ---------- -------- ------------ ----------- -------
Consolidated statement of cash flows
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 Sep 30 Sep 31 Mar
20 19 20
Note GBP'000 GBP'000 GBP'000
--------------------------------------------------------------------- ---- ---------- ---------- -------
Net cash inflow from operating activities after tax 8 2,641 3,638 6,543
Cash flow from investing activities
Purchase of intangible assets (62) (124) (311)
Purchase of property, plant and equipment (79) (194) (243)
Purchase of securities (411) - (1,113)
(Purchase)/sale of money market instruments with maturity > 3 months (4,533) (3,125) 2,777
(Redemption) of unit funds (354) - -
Interest received 47 93 160
--------------------------------------------------------------------- ---- ---------- ---------- -------
Net cash (outflow)/inflow from investing activities (5,392) (3,350) 1,270
Cash flow from financing activities
Lease repayments (280) (299) (576)
Subscription for shares in subsidiary - 120 120
Purchase of own shares (1,492) - (487)
Dividends paid to equity shareholders 5 (3,068) (3,619) (5,888)
--------------------------------------------------------------------- ---- ---------- ---------- -------
Cash outflow from financing activities (4,840) (3,798) (6,831)
--------------------------------------------------------------------- ---- ---------- ---------- -------
Net (decrease)/increase in cash and cash equivalents in the period (7,591) (3,510) 982
Effect of exchange rate changes 145 120 346
--------------------------------------------------------------------- ---- ---------- ---------- -------
Cash and cash equivalents at the beginning of the period 14,294 12,966 12,966
--------------------------------------------------------------------- ---- ---------- ---------- -------
Cash and cash equivalents at the end of the period 6,848 9,576 14,294
--------------------------------------------------------------------- ---- ---------- ---------- -------
Closing cash and cash equivalents consists of:
Cash 7 6,334 2,097 8,004
Cash equivalents 7 514 7,479 6,290
--------------------------------------------------------------------- ---- ---------- ---------- -------
Cash and cash equivalents 7 6,848 9,576 14,294
--------------------------------------------------------------------- ---- ---------- ---------- -------
Notes to the consolidated financial statements for the six
months ended 30 September 2020
These consolidated financial statements exclude disclosures that
are immaterial and judged to be unnecessary to understand our
results and financial position.
1. Basis of preparation
The condensed set of consolidated financial statements included
in this interim financial report has been prepared in accordance
with International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union. The financial
information set out in this Interim Report does not constitute
statutory accounts as defined in Section 434 of the Companies Act
2006. The Group's statutory financial statements for the year ended
31 March 2020 (which were prepared in accordance with IFRSs as
adopted by the European Union) have been delivered to the Registrar
of Companies. The auditor's report on those financial statements
was unqualified and did not contain statements under Section 498(2)
or Section 498(3) of the Companies Act 2006.
The accounting policies for recognition, measurement,
consolidation and presentation as set out in the Group's Annual
Report for the year ended 31 March 2020 have been applied in the
preparation of the IFRS condensed consolidated half-year financial
information.
Application of new standards
There have been no new or amended standards adopted in the
financial year beginning 1 April 2020 which have a material impact
on the Group or any company within the Group.
Impacts of covid-19 during the period
The Chief Executive Officer's statement and Operating review
sections of this Interim Report provide information as to the
broader effects of covid-19 on the Group's financial results, its
operations and prospects. The Group has given due consideration as
to the impact of uncertainty arising from covid-19 related factors
on the production of the interim financial statements.
Going concern
As part of the Directors' consideration of the appropriateness
of adopting the going concern basis for the preparation of the
interim financial statements, the Directors have assessed whether
the Group can meet its obligations as they fall due and can
continue to meet its solvency requirements over a period of at
least twelve months from the approval of this report.
The Board has considered financial projections which demonstrate
the ability of the Group to withstand market shocks in a range of
scenarios, including very severe ones.
In assessing the appropriateness of the going concern basis, the
Board considered base case liquidity and solvency projections that
incorporated an estimated view of the potential economic downturn
that is anticipated to be experienced due to the impacts of
covid-19. In addition, a more onerous economic downturn was also
modelled. The projections demonstrated that excess capital would
remain in the Group under both scenarios, supporting cash
generation in the going concern period.
As a result of the above assessment, the Directors are satisfied
that all mandatory outgoings can be met over the going concern
period, and consider it appropriate to adopt the going concern
basis in the preparation of these interim financial statements.
Consolidation
The accounting policies adopted in these interim financial
statements are identical to those adopted in the Group's most
recent annual financial statements for the year ended 31 March
2020.
The consolidated financial information contained within the
financial statements incorporates financial statements of the Group
and entities controlled by the Group (its subsidiaries) drawn up to
30 September 2020. Control is achieved where the Company has the
power to govern the financial and operating policies of an entity
so as to obtain benefits from its activities. Where the Company
controls an entity, but does not own all the share capital of that
entity, the interests of the other shareholders are stated within
equity as non-controlling interests or within current liabilities
as financial liabilities depending on the characteristic of the
investment, being the proportionate share of the fair value of
identifiable net assets on date of acquisition plus the share of
changes in equity since the date of consolidation.
An Employee Benefit Trust ("EBT") has been established for the
purposes of satisfying certain share-based awards. The Group has
"de facto" control over this entity. This trust is fully
consolidated within the financial statements (see note 10 for
further details).
Throughout the period, the Group had investments in two funds,
which it was in a position to control. These fund investments are
held by Record plc and represent seed capital investments by the
Group. The funds controlled by the Group have been consolidated on
a line-by-line basis from the time that the Group gained control
over the fund.
2. Critical accounting estimates and judgements
The estimates and judgements applied in the interim financial
statements are consistent with those applied in the financial
statements for the year ended 31 March 2020.
3. Revenue
Revenue recognition
Revenue comprises the fair value of the consideration received
or receivable for the provision of currency management services.
Our revenue typically arises from charging management fees or
performance fees and both are accounted for in accordance with IFRS
15 - "Revenue from Contracts with Customers".
Management fees are recorded on a monthly basis as the
underlying currency management service occurs. There are no other
performance obligations. Management fees are calculated as an
agreed percentage of the Assets Under Management Equivalents
("AUME") denominated in the client's chosen base currency. The
percentage varies depending on the nature of services and the level
of AUME. Management fees are typically invoiced to the customer
quarterly with receivables recognised for unpaid invoices.
The Group is entitled to earn performance fees from some clients
where the performance of the clients' mandates exceeds defined
benchmarks over a set time period, and are recognised when the fee
amount can be estimated reliably and it is highly probable that it
will not be subject to significant reversal.
Performance fee revenues are not considered to be highly
probable until the end of a contractual performance period and
therefore are not recognised until they crystallise, at which time
they are payable by the client and are not subject to any clawback
provisions. There are no other performance obligations or services
provided which suggest these have been earned either before or
after crystallisation date.
a) Revenue from contracts with customers
The following table provides a breakdown of revenue from
contracts with customers, with management fees analysed by product.
Other investment services income includes fees from signal hedging
and fiduciary execution.
Six months Six months Year
ended ended ended
30 Sep 30 Sep 31 Mar
20 19 20
Revenue by product type GBP'000 GBP'000 GBP'000
--------------------------------- ---------- ---------- -------
Management fees
Passive Hedging 6,027 5,880 12,026
Dynamic Hedging 1,889 1,994 3,995
Currency for Return 937 958 1,982
Multi-product 2,379 2,301 5,130
--------------------------------- ---------- ---------- -------
Total management fee income 11,232 11,133 23,133
Performance fee income - - 1,819
Other investment services income 606 252 611
--------------------------------- ---------- ---------- -------
Total revenue 11,838 11,385 25,563
--------------------------------- ---------- ---------- -------
b) Geographical analysis
The geographical analysis of revenue is based on the destination
i.e. the location of the client to whom the services are
provided.
Six months Six months Year
ended ended ended
30 Sep 30 Sep 31 Mar
20 19 20
Revenue by geographical region GBP'000 GBP'000 GBP'000
------------------------------- ---------- ---------- -------
UK 1,151 1,157 2,328
US 3,273 2,996 6,209
Switzerland 4,800 4,717 11,377
Other 2,614 2,515 5,649
------------------------------- ---------- ---------- -------
Total revenue 11,838 11,385 25,563
------------------------------- ---------- ---------- -------
4. Earnings per share
Basic earnings per share is calculated by dividing the profit
for the financial period by the weighted average number of ordinary
shares in issue during the period.
Diluted earnings per share is calculated as for the basic
earnings per share with a further adjustment to the weighted
average number of ordinary shares to reflect the effects of all
potential dilution.
There is no difference between the profit for the financial
period used in the basic and diluted earnings per share
calculations.
Six months Six months
ended ended Year ended
30 Sep 30 Sep 31 Mar
20 19 20
------------------------------------------------------------------------------- ----------- ----------- -----------
Weighted average number of shares used in calculation of basic earnings per
share 195,664,074 196,424,001 196,679,874
Effect of potential dilutive ordinary shares - share options 426,382 532,520 390,156
------------------------------------------------------------------------------- ----------- ----------- -----------
Weighted average number of shares used in calculation of diluted earnings per
share 196,090,456 196,956,521 197,070,030
Basic earnings per share 1.10p 1.29p 3.26p
------------------------------------------------------------------------------- ----------- ----------- -----------
Diluted earnings per share 1.10p 1.29p 3.26p
------------------------------------------------------------------------------- ----------- ----------- -----------
The potential dilutive shares relate to the share options
granted in respect of the Group's Share Scheme. At the beginning of
the period there were 11,895,515 share options. During the six --
month period 3,425,000 share options were granted and 400,314 were
exercised. No options lapsed in the period.
As at 30 September 2020, there were share options in place over
14,920,201 shares.
During the period, the Company gave certain employees
("Participants") the opportunity to acquire interests ("Interests")
in the ordinary shares of Record plc under the new Record Joint
Share Ownership Plan ("JSOP"). Under the JSOP, the Company procures
that Record plc shares are acquired by the EBT trustee (the
"Trustee") to be held jointly by the Trustee and the Participant.
The beneficial interest in the shares is owned by the Trustee up to
a hurdle which equates to the market value of the shares upon grant
of the JSOP interest. Any value above the hurdle is owned by the
Participant.
The Participant's Interests vest in equal tranches over the four
years following grant. Upon each vesting, the value of the
Participant's Interest above the hurdle will be transferred from
the EBT to the respective employee in the form of Record plc
shares. The Company granted Interests over 2,375,000 shares in the
period at a market value of 37.3 pence per share.
5. Dividends
The dividends paid during the six months ended 30 September 2020
totalled GBP3,068,153 (1.56 pence per share) being a final ordinary
dividend in respect of the year ended 31 March 2020 of 1.15 pence
per share and a special dividend of 0.41 pence per share. An
interim dividend of GBP2,268,389 (1.15 pence per share) was paid in
the six months ended 31 March 2020, thus the full ordinary dividend
in respect of the year ended 31 March 2020 was 2.71 pence per
share. The dividend paid by the Group during the six months ended
30 September 2019 totalled GBP3,619,152 (1.84 pence per share)
being a final ordinary dividend in respect of the year ended 31
March 2019 of 1.15 pence per share and a special dividend of 0.69
pence per share.
The interim dividend declared in respect of the six months ended
30 September 2020 is 1.15 pence per share.
6. Accounting for seed investments in funds
Record plc holds seed investments in several funds. These funds
have various investment objectives and policies and are subject to
the terms and conditions of their offering documentation. The
principal activity of each is to invest capital from investors in a
portfolio of assets in order to provide a return for those
investors.
Funds are consolidated on a line-by-line basis where the Group
has determined that a controlling interest exists through an
investment holding in the fund, in accordance with IFRS 10 -
"Consolidated Financial Statements". Otherwise, investments in
funds are measured at fair value through profit or loss.
Record has seeded two funds which have been active during the
half year ended 30 September 2020. The Group has controlled both
the Record Currency - Strategy Development Fund and the Record -
Currency Multi-Strategy Fund throughout the half year ended 30
September 2020 and the comparative periods, and both were
consolidated in full, on a line-by-line basis, in the Group's
financial statements throughout these periods.
Unit holdings in funds as at 30 September 2020
Record
plc
Record Related plus related Other
plc parties parties investors
-------------------------------------------- ------ ------- ------------ ---------
Record Currency - Strategy Development Fund 100% 0% 100% 0%
Record - Currency Multi-Strategy Fund 32% 52% 84% 16%
-------------------------------------------- ------ ------- ------------ ---------
Investments
As at As at As at
30 Sep 30 Sep 31 Mar
20 19 20
------------------------------------------------ ------ ------- ------
Impact bonds 2,365 - 2,472
Supply chain finance fund 394 - -
Record Currency - Emerging Market Currency Fund - 1,152 -
------------------------------------------------ ------ ------- ------
Investments 2,759 1,152 2,472
------------------------------------------------ ------ ------- ------
Financial liabilities
Record plc has made investments in a number of seed funds where
it is in a position to be able to control those funds by virtue of
the size of its holding. When Record plc is not the only investor
in such funds and the external investment instrument does not meet
the definition of an equity instrument under IAS 32 then the
instrument is classified as a financial liability. The financial
liabilities are measured at cost plus movement in value of the
third party investment in the fund.
The Record Currency - FTSE FRB10 Index Fund and the Record
Currency - Emerging Market Currency Fund were closed in March
2020.
The Record - Currency Multi-Strategy Fund and the Record
Currency - Strategy Development Fund were considered to be under
control of the Group as the combined holding of Record plc and its
Directors constituted a majority interest throughout the current
and prior periods.
The mark-to-market value of units held by investors in these
funds other than Record plc are shown as financial liabilities in
the Group financial statements, in accordance with IFRS.
Mark -- to -- market value of external holding in seed funds
consolidated into the accounts of the Record Group
As at As at As at
30 Sep 30 Sep 31 Mar
20 19 20
GBP'000 GBP'000 GBP'000
---------------------------------------- ------- ------- -------
Record Currency - FTSE FRB10 Index Fund - 479 -
Record - Currency Multi-Strategy Fund 1,800 2,242 2,191
---------------------------------------- ------- ------- -------
Financial liabilities 1,800 2,721 2,191
---------------------------------------- ------- ------- -------
There is no external investment in the Record Currency -
Strategy Development Fund.
The financial liabilities relate only to the fair value of the
external investors' holding in the seed funds, and should not be
construed as debt.
7. Cash management
The Group's cash management strategy employs a variety of
treasury management instruments including cash, money market
deposits and treasury bills with maturities of up to one year. We
note that not all of these instruments are classified as cash or
cash equivalents under IFRS.
IFRS defines cash and cash equivalents as cash in hand, on
demand and collateral deposits held with banks, and other
short-term highly liquid investments that are readily convertible
to a known amount of cash and are subject to an insignificant risk
of changes in value. Moreover, instruments can only generally be
classified as cash and cash equivalents where they are held for the
purpose of meeting short-term cash commitments rather than for
investment or other purposes.
In the Group's judgement, bank deposits and treasury bills with
maturities in excess of three months do not meet the definition of
short-term or highly liquid and are held for purposes other than
meeting short-term commitments. In accordance with IFRS, these
instruments are not categorised as cash or cash equivalents and are
disclosed as money market instruments with maturities greater than
three months.
The table below summarises the instruments managed by the Group
as cash, and their IFRS classification:
As at As at As at
30 Sep 30 Sep 31 Mar
20 19 20
Assets managed as cash GBP'000 GBP'000 GBP'000
---------------------------------------------------- ------- ------- -------
Bank deposits with maturities > 3 months 11,246 12,563 7,958
Treasury bills with maturities > 3 months 1,245 1,297 -
---------------------------------------------------- ------- ------- -------
Money market instruments with maturities > 3 months 12,491 13,860 7,958
---------------------------------------------------- ------- ------- -------
Cash 6,334 2,097 8,004
Bank deposits with maturities <= 3 months 514 7,479 6,290
---------------------------------------------------- ------- ------- -------
Cash and cash equivalents 6,848 9,576 14,294
---------------------------------------------------- ------- ------- -------
Total assets managed as cash 19,339 23,436 22,252
---------------------------------------------------- ------- ------- -------
8. Cash flow from operating activities
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 Sep 30 Sep 31 Mar
20 19 20
GBP'000 GBP'000 GBP'000
---------------------------------------------------- ---------- ---------- -------
Operating profit 2,573 3,084 7,649
Adjustments for non-cash movements:
Depreciation of property, plant and equipment 144 117 253
Depreciation of right -- of -- use assets 246 282 504
Amortisation of intangible assets 83 55 129
Share-based payments 322 (16) 286
Net release of shares previously held by EBT 188 225 452
Other non-cash movements (415) (275) (710)
---------------------------------------------------- ---------- ---------- -------
3,141 3,472 8,563
Changes in working capital
Decrease/(increase) in receivables 1,421 754 (1,281)
(Decrease)/increase in payables (588) 37 618
Decrease/(increase) in derivative financial assets 35 31 (30)
(Decrease) in derivative financial liabilities - (51) -
(Decrease)/increase in financial liabilities (612) 102 72
---------------------------------------------------- ---------- ---------- -------
Cash inflow from operating activities 3,397 4,345 7,942
Corporation taxes paid (756) (707) (1,399)
---------------------------------------------------- ---------- ---------- -------
Net cash inflow from operating activities after tax 2,641 3,638 6,543
---------------------------------------------------- ---------- ---------- -------
9. Fair value measurement for derivative financial
instruments
The following table presents financial assets and liabilities
measured at fair value in the consolidated statement of financial
position in accordance with the fair value hierarchy based on the
significance of inputs used in measuring their fair value. The
hierarchy has the following levels:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The level within which the financial asset or liability is
classified is determined based on the lowest level of input to the
fair value measurement. The financial assets and liabilities
measured at fair value in the statement of financial position are
grouped into the fair value hierarchy as follows:
Total Level 1 Level 2 Level 3
As at 30 September 2020 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------------------- ------- ------- ------- -------
Financial assets at fair value through profit or loss
Impact bonds 2,365 2,365 - -
Other securities 394 394 - -
Forward foreign exchange contracts used for seed funds 41 - 41 -
Foreign exchange options used for seed funds 5 - 5 -
Forward foreign exchange contracts used for hedging 112 - 112 -
Financial liabilities at fair value through profit or loss
Forward foreign exchange contracts used for seed funds (35) - (35) -
----------------------------------------------------------- ------- ------- ------- -------
2,882 2,759 123 -
----------------------------------------------------------- ------- ------- ------- -------
Total Level 1 Level 2 Level 3
As at 31 March 2020 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------------------- ------- ------- ------- -------
Financial assets at fair value through profit or loss
Impact bonds 2,472 2,472 - -
Forward foreign exchange contracts used by seed funds 178 - 178 -
Foreign exchange options used by seed funds 15 - 15 -
Financial liabilities at fair value through profit or loss
Forward foreign exchange contracts used for hedging (316) - (316) -
Forward foreign exchange contracts used by seed funds (294) - (294) -
----------------------------------------------------------- ------- ------- ------- -------
2,055 2,472 (417) -
----------------------------------------------------------- ------- ------- ------- -------
Total Level 1 Level 2 Level 3
As at 30 September 2019 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------------------- ------- ------- ------- -------
Financial assets at fair value through profit or loss
Forward foreign exchange contracts used for seed funds 93 - 93 -
Options used for seed funds 9 - - 9
Forward foreign exchange contracts used for hedging 30 - 30 -
Financial liabilities at fair value through profit or loss
Forward foreign exchange contracts used for seed funds (22) - (22) -
Forward foreign exchange contracts used for hedging (36) - (36) -
----------------------------------------------------------- ------- ------- ------- -------
74 - 65 9
----------------------------------------------------------- ------- ------- ------- -------
There have been no transfers between levels in any of the
reported periods.
Basis for classification of financial instruments within the
fair value hierarchy
Forward foreign exchange contracts are classified as Level 2.
The fair value of forward foreign exchange contracts is established
using interpolation of observable market data rather than a quoted
price.
Options are classified as Level 3. The fair value of an option
is established using a Black-Scholes model.
10. Called -- up share capital
The share capital of Record plc consists only of fully paid
ordinary shares with a par value of 0.025 pence. All shares are
equally eligible to receive dividends and the repayment of capital
and represent one vote at the shareholders' meeting.
Unaudited as at Unaudited as at Audited as at
30 Sep 20 30 Sep 19 31 Mar 20
-------------------- -------------------- --------------------
GBP'000 Number GBP'000 Number GBP'000 Number
------------------------------------ ------- ----------- ------- ----------- ------- -----------
Authorised
Ordinary shares of 0.025 pence each 100 400,000,000 100 400,000,000 100 400,000,000
Called up, allotted and fully paid
Ordinary shares of 0.025 pence each 50 199,054,325 50 199,054,325 50 199,054,325
------------------------------------ ------- ----------- ------- ----------- ------- -----------
Movement in Record plc shares held by the Record plc Employee
Benefit Trust ("EBT")
The EBT was formed to hold shares acquired under the Record plc
share-based compensation plans. Under IFRS the EBT is considered to
be under de facto control of the Group, and has therefore been
consolidated into the Group financial statements.
Neither the purchase nor sale of own shares leads to a gain or
loss being recognised in the Group statement of comprehensive
income. Any such gains or losses are recognised directly in
equity.
Number
------------------------------------------------------ ---------
Record plc shares held by EBT as at 31 March 2019 2,986,036
Net change in holding of own shares by EBT in period (663,868)
------------------------------------------------------ ---------
Record plc shares held by EBT as at 30 September 2019 2,322,168
Net change in holding of own shares by EBT in period 897,219
------------------------------------------------------ ---------
Record plc shares held by EBT as at 31 March 2020 3,219,387
Net change in holding of own shares by EBT in period 3,071,133
------------------------------------------------------ ---------
Record plc shares held by EBT as at 30 September 2020 6,290,520
------------------------------------------------------ ---------
The EBT holds shares in Record plc which are used to meet the
Group's obligations to employees under the Group Profit Share
Scheme and the Record plc Share Scheme. Own shares are recorded at
cost and are deducted from retained earnings.
11. Non-controlling interest
From time to time, Record plc may make an investment in an
entity where it is in a position to be able to control the entity
by virtue of the size of its own holding plus those of any related
party. Non-controlling interests occur when Record plc is not the
only investor in the entity. The non-controlling interest is
measured at cost plus the share of profit or loss of the third
party investment in the entity.
Investment in Trade Record Ltd
On 22 March 2019, Record plc subscribed GBP40,000 for 40% of the
ordinary share capital of Trade Record Ltd. In a second round of
investment on 8 May 2019, Record plc invested a further GBP80,000,
maintaining Record plc's 40% holding.
Record plc, in conjunction with two of its Directors as related
parties, controls 80% of the ordinary share capital, giving the
Company rights over variable returns and the power to affect
returns. Therefore the Company has the ability to control Trade
Record Ltd, which is consequently recognised as a subsidiary.
In accordance with IFRS 10, the financial results of Trade
Record Ltd are consolidated on a line-by-line basis within the
financial statements of the Group.
Six months Six months Year
ended ended ended
30 Sep 30 Sep 31 Mar
20 19 20
GBP'000 GBP'000 GBP'000
--------------------------------------------- ---------- ---------- -------
Non-controlling interest in Trade Record Ltd 125 152 132
--------------------------------------------- ---------- ---------- -------
12. Related parties
Related parties of the Group include key management personnel,
close family members of key management personnel, subsidiaries, the
EBT and the seed funds. There has been no change in related parties
from those disclosed in the Annual Report 2020.
Transactions or balances between Group entities have been
eliminated on consolidation and, in accordance with IAS 24, are not
disclosed in this note.
Key management personnel
The compensation given to key management personnel is as
follows:
Six months Six months Year
ended ended ended
30 Sep 30 Sep 31 Mar
20 19 20
GBP'000 GBP'000 GBP'000
----------------------------- ---------- ---------- -------
Short-term employee benefits 2,809 2,631 5,627
Post-employment benefits 178 120 242
Share-based payments 389 356 909
----------------------------- ---------- ---------- -------
3,376 3,107 6,778
----------------------------- ---------- ---------- -------
The dividends paid to key management personnel in the six months
ended 30 September 2020 totalled GBP1,598,335 (year ended 31 March
2020: GBP3,113,776; six months ended 30 September 2019:
GBP1,914,884).
James Wood-Collins left the Board of Directors on 13 February
2020 and left the Group on 13 August 2020 after working his six --
month notice period. Payments from 1 April to 13 August were
GBP287,804. These payments comprise GBP121,507 salary, GBP343
medical benefits, GBP45,969 short term incentives (GPS cash),
GBP22,985 short term incentive (GPS shares), and GBP97,000 for loss
of office. No other payments were made to former Directors.
During the period, the Trustee of the Record plc EBT entered
into a trading plan with the Company in connection with the launch
of the JSOP, the new share-based incentive scheme. On 21 September
2020, the EBT acquired 4 million ordinary shares from Neil Record
(Non-executive Chairman of the Company) at a market price of 37.30
pence per ordinary share, equating to a total consideration of
GBP1,492,000.
13. Post reporting date events
No adjusting or significant non-adjusting events have occurred
between the reporting date and the date of approval.
AUME definition
The basis for measuring AUME differs for each product and is
detailed below:
-- Passive Hedging mandates - the aggregate nominal amount of
passive hedges actually outstanding in respect of each client;
-- Dynamic Hedging mandates - total amount of clients'
investment portfolios denominated in liquid foreign currencies, and
hence capable (under the terms of the relevant mandate) of being
hedged;
-- Currency for Return mandates - the maximum aggregate nominal
amount of outstanding forward contracts for each client;
-- Multi-product mandates - the chargeable mandate size for each client;
-- Cash - the total set aside by clients and managed by Record.
Notes to Editors
This announcement includes information with respect to Record's
financial condition, its results of operations and business,
strategy, plans and objectives. All statements in this document,
other than statements of historical fact, including words such as
"anticipates", "expects", "intends", "plans", "believes", "seeks",
"estimates", "may", "will", "continue", "project" and similar
expressions, are forward-looking statements.
These forward-looking statements are not guarantees of the
Company's future performance and are subject to risks,
uncertainties and assumptions that could cause the actual future
results, performance or achievements of the Company to differ
materially from those expressed in or implied by such
forward-looking statements.
The forward-looking statements contained in this document are
based on numerous assumptions regarding Record's present and future
business and strategy and speak only as at the date of this
announcement.
The Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking
statements contained in this announcement whether as a result of
new information, future events or otherwise.
This information is provided by RNS, the news service of the
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END
IR EXLFLBFLEFBE
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