Final Results
Ashmore Group plc
11 September 2020
RESULTS FOR THE YEAR ENDING 30 JUNE 2020
Ashmore Group plc (Ashmore, the Group), the specialist Emerging Markets asset manager, today announces its audited results for the year ending 30 June 2020.
- Solid operating and financial performance
- Adjusted net revenue increased by 5% YoY, driven by 7% growth in net management fees
- Lower operating costs delivered 10% YoY growth in adjusted EBITDA to £222.5 million and higher margin of 68%
- Profit before tax of £221.5 million increased 1% YoY and diluted EPS increased 3% YoY to 25.7 pence
- Recommended final DPS of 12.10 pence to give a 2% YoY increase in total dividends to 16.90 pence
- Balance sheet strength maintained with financial resources of more than £700 million
- Assets under management (AuM) declined by 9% to US$83.6 billion
- Negative market performance of US$8.1 billion reflecting the Q3 impact of COVID-19 pandemic
- Flat net inflows over the year with continued allocations by existing and new institutional clients offset by mutual fund redemptions relating to impact of Q3 market conditions
- Net inflows to equity products in every quarter
- Performance impacted by fall in markets in Q3, Ashmore processes generating significant alpha as markets recover
- 17% of AuM outperforming benchmarks over three years and 74% over five years
- Equities strategies delivering strong relative performance
- Consistent implementation of active management processes generating significant alpha as markets recover
- Strategic progress
- Diversification through increased momentum in equities and continued seed capital investment
- Ashmore Indonesia listed on Jakarta Stock Exchange in January 2020
- Strength of Ashmore's business model demonstrated in adverse conditions
- Resilient business model underpinned by strong team-based culture, a single global operating platform, balance sheet strength and cost flexibility
- Swift, effective transition to remote working for all offices in March
- Ashmore's team-based culture means office working is optimal; employees' welfare is a priority in determining how and when to return to offices
Commenting on the Group's results, Mark Coombs, Chief Executive Officer, Ashmore Group said:
"Ashmore has delivered a solid operational and financial performance over the past year, against a backdrop of significant market dislocation in the third quarter as a result of the worldwide COVID-19 pandemic. The Group's business model, based on a consistent global operating platform, has proven its resilience in this challenging period and, after the initial negative impact in Q3, the investment processes are delivering outperformance as markets recover and client flows have continued to stabilise.
"The economic and social effects of the virus will continue for some time and the medium to long term impact remains uncertain. However, the huge diversity of Emerging Markets means that countries will be affected and will respond differently, thereby providing a wide range of potential return scenarios for active managers. Importantly, many emerging nations have the policy flexibility to cope with the challenges, and they provide superior growth and yield prospects compared with many Developed Markets, where high equity valuations and persistently low or negative rates combine with low growth and high levels of debt. This provides clear incentives for investors to increase allocations to both equity and fixed income markets in the emerging world and therefore supports the medium-term growth opportunity for Ashmore's specialist approach."
Analysts briefing
There will be an online presentation for analysts at 9.30am on 11 September 2020. A copy of the presentation will be made available on the Group's website at www.ashmoregroup.com.
Contacts
For further information please contact:
Ashmore Group plc
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Tom Shippey, Group Finance Director |
+44 (0)20 3077 6191 |
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Paul Measday, Investor Relations |
+44 (0)20 3077 6278 |
FTI Consulting
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Neil Doyle |
+44 (0)20 3727 1141 |
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Laura Ewart |
+44 (0)20 3727 1160 |
Chief Executive's review
Ashmore delivered a solid financial performance this year, with net revenue growth of 5%, an increase in adjusted EBITDA of 10% and 3% higher diluted EPS. The social and economic impact of the COVID-19 pandemic inevitably impacts any assessment of the past 12 months, but reassuringly Ashmore implemented its investment philosophy diligently throughout the market volatility, demonstrated the operational resilience of its business model, continued to broaden its client base, and achieved important strategic developments during the period.
Investment performance
The first half of the financial year saw satisfactory returns across the Emerging Markets investment themes, continuing the recovery trend evident since early 2016, albeit with some volatility and therefore opportunities for Ashmore's investment processes to add risk to portfolios to capture longer-term upside. This relatively benign environment then changed dramatically with the worldwide spread of the COVID-19 virus in the third quarter of the financial year. Global capital markets saw rapid and severe declines that resulted in mark-to-market losses across a broad range of asset classes.
As is often experienced in a period of widespread risk aversion, a number of Ashmore's strategies underperformed their benchmarks. Some Emerging Markets countries required a restructuring of their debt, which also contributed to the underperformance. While the market recovery and delivery of outperformance began in Q4, the performance snapshot at the end of June reflects the impact of the Q3 sell-off with 9% of AuM outperforming over one year, 17% over three years and 74% over five years. For a number of Ashmore's broad fixed income composites, this picture is also reflected in performance compared with peer groups, while equity performance is generally strong versus the peer groups.
The combined impact of the COVID-19 virus, an oil price shock and a sharp fall in US equity prices caused investors to move quickly into 'safe haven' assets such as US government bonds and to focus on raising US dollar liquidity. Valuations across asset classes reached extreme levels, in many cases those last seen more than a decade ago in the global financial crisis. For example, the spread over US Treasuries on external debt exceeded 700 basis points, more than four times its historical low and more than twice the recent level of around 300 basis points.
Ashmore's experienced investment teams have managed through multiple market cycles, and while each cycle is different, the principles of investing do not change. With a tolerance for mark-to-market volatility, the investment committees seek to identify mispriced assets and to add risk to portfolios in order to deliver longer-term outperformance. Such opportunities were apparent in most investment themes in February and March, but were particularly notable in high yield external debt given significant spread widening, in investment grade corporate and external debt, and in equities as valuations fell close to book values.
While the economic and social consequences of COVID-19 will continue for some time, markets have started to recover from the levels seen in March. The broad-based rally, combined with the benefit of adding risk at lower market levels, means that Ashmore's strategies are outperforming on a short-term basis. For example, the blended debt composite saw its benchmark fall by 13% in Q3 and the strategy underperformed by 8%; the benchmark rallied 9% in Q4 and the strategy outperformed by 6% over the three months.
Ashmore remains focused on continuing to recover the performance impact of the Q3 market dislocation, and as described in the Market review and outlook comments below, the conditions remain in place for Emerging Markets to outperform developed world assets and for Ashmore's investment processes to continue to deliver performance for clients.
Clients
The Group has an experienced and diversified client base that continued to allocate to Emerging Markets and delivered flat net flows over the year. The broad-based net inflows of US$5.7 billion during the first half of the year were disappointingly then reversed in the second half, as the impact of market volatility resulted in net outflows over the six months of US$5.8 billion. Inevitably, intermediary retail clients were quicker to react to the change in markets and consequently the proportion of AuM from such clients has reduced over the year from 15% to 11%.
The majority of the outflows were experienced during the extremely volatile market conditions of February and March, and concentrated in two specific areas: intermediary retail and institutional investors reacting quickly to the deterioration in markets and consequent underperformance in specific strategies such as Short Duration, and institutional clients sourcing US dollar liquidity from daily-dealing mutual funds invested in local currency bond markets. Some clients also inevitably reduced exposure as prices recovered.
The level of gross subscriptions was higher in the first six months of the year, but there were consistent patterns of client behaviour throughout the 12-month period. For example, there was a good mix of existing institutional clients adding to mandates or funding new mandates, and new client wins, particularly in the equities theme. Notably, the Group attracted new clients in the period after remote working was introduced, demonstrating that the distribution processes continue to be effective even without the ability to travel and meet counterparts in person.
The diversified nature of the Group's client base, whether by domicile, by type of institution and retail intermediary or by investment objectives, means that there is a variety of responses to a given set of market conditions and resultant investment performance. While some clients redeem capital either immediately or shortly after a market dislocation, others will see it as an opportunity to take advantage of attractive valuations and to increase allocations in line with long-term objectives. A third constituency will take longer to take stock of the situation and will therefore inevitably react later.
All these types of behaviour have been experienced in previous cycles and over the past six months, and it is reasonable to expect a continued mix of client behaviours until there is a greater degree of conviction in respect of economic and market developments.
Business model resilience
Ashmore invests in cyclical markets and its business model is explicitly designed to operate successfully through all stages of the cycle. Several characteristics, including the single consistent operating platform, provide resilience and have enabled the Group to protect returns to shareholders in a period when assets under management are lower, as well as enabling a rapid transition to remote working for all the Group's employees in response to the COVID-19 pandemic. The strength of Ashmore's business model meant that it did not furlough or make redundant any staff as a result of COVID-19 and nor did it voluntarily subscribe to any government funding schemes.
Disciplined operating cost control
Non-variable operating costs are managed strictly, with a detailed bottom-up budgeting process ensuring that redundant expenses are identified and removed from the cost base. Additionally, in the second half of the year, the imposition of travel restrictions and remote working in many countries meant that operating costs were slightly lower than anticipated. For the 12 months as a whole, operating costs before variable remuneration were reduced by 5%.
Remuneration philosophy
A principal component of the Group's cost flexibility and ability to respond quickly and appropriately to different revenue conditions is its remuneration philosophy, with a bias towards performance-related variable pay. The aggregate variable remuneration paid to employees each year is determined by the performance of the business, covering both financial and non-financial factors, and is capped at 25% of EBVCIT (operating profit before the variable remuneration charge). This means employee remuneration is aligned with the interests of clients and shareholders, and profitability can be protected in more challenging stages of the cycle. Furthermore, with a significant proportion of an employee's variable remuneration being in the form of equity awards with five-year vesting, this alignment of interests is maintained over the long term.
Although Ashmore's financial performance was solid this year, with higher revenues and profits, the variable remuneration charge was reduced to 19.5% from 22.5% in the prior year, in recognition of the more challenging market environment in the second half of the year and its consequent impact on investment performance and client flows. This demonstrates the benefits to shareholders of a well-designed and flexible remuneration policy in which discretion can be and is used in order to achieve appropriate outcomes. Together with the ongoing control of other operating costs, this resulted in the Group's adjusted EBITDA margin increasing slightly to 68%.
Global operating model
Ashmore has a single, consistent operating model implemented across all offices to provide stability and scalability. The operational infrastructure supports the business in global hubs in New York, Dublin, London and Singapore together with Tokyo and the local asset management platforms.
For example, investment teams use a single front office portfolio management and trading system, the fund accounting platform is uniform across the jurisdictions, and the Group has a single general ledger. This simple architecture is the result of Ashmore's strategy delivering growth primarily through organic means rather than relying on acquisitions with the associated challenges of integrating legacy systems.
This structure provides efficiency and scalability. In the current year, additional benefits were seen as the Group was able to implement its Business Continuity Plan and transition all its employees swiftly, safely and successfully to a secure remote working environment in March. That this was achieved in a period notable for stressed market conditions and elevated transaction volumes is even greater testament to the resilience of the platform and the professionalism and dedication of Ashmore's employees.
Although some employees in Asia have started to return to offices in line with local government guidance, there remains the possibility of a return to greater restrictions as has been seen elsewhere. The Group's operating platform is capable of supporting the remote-working environment for the foreseeable future, however there are other considerations, for example from a culture perspective. Over the longer term, the fundamental characteristics of Ashmore's business model will continue to be based upon teams collaborating effectively in an office-based environment, with a close-knit culture and a common remuneration philosophy that aligns the interests of all stakeholders.
Balance sheet
Ashmore's balance sheet is conservatively structured with substantial financial resources predominantly held in cash and no debt, and this conservative approach has served the Group and its shareholders well through numerous market cycles. Over the year, the strength and liquidity of the balance sheet was maintained while continuing to provide resources to invest in future growth through the active management of the Group's seed capital. For example, total new seed capital investments of more than £50 million were made during the period, predominantly into equity funds to support growth in this theme. Over the year, there were successful net realisations of seed capital investments.
As described in the Business review, the ICAAP resulted in an increase in the Group's Pillar II regulatory capital requirements due to the impact of higher market volatility on increased balance sheet positions, but the Group's total financial resources of approximately £700 million mean that a substantial excess capital position has been maintained throughout the period.
Strategy update
The asset management industry continues to face various structural challenges, such as the increasing adoption of passive investment strategies, a more complex regulatory environment, and rising demand for ESG factors to be incorporated into investment decisions.
Ashmore's specialist, active investment style, and consistent global operating model assist in addressing these challenges, and its strategy is aligned with the significant growth opportunity across the broad range of Emerging Markets asset classes, with the three phases focused on growing and diversifying Ashmore's business and creating value for clients and shareholders. Progress was made in all three phases this year.
Phase 1: continued allocations
The Emerging Markets investment universe continues to expand, with 12% growth in the value of bonds in issue to US$29.6 trillion and an equity market capitalisation of over US$30 trillion. However, benchmark representation of 13% for fixed income and 19% for equities remains at low levels given the scale and importance of the Emerging Markets investment opportunity.
Global benchmark indices have a typical Emerging Market weighting of between 10% and 20%, and most investors have a target allocation of below 10%. Given the more favourable prospects for emerging countries over the longer term, as they continue along the path of economic convergence with the developed world, then this significant underweight position poses a risk to investors' risk-adjusted returns that should be addressed by higher allocations.
Ashmore's institutional flows over the past 12 months remain biased towards existing clients with approximately 80% of gross flows delivered through a combination of additional capital in existing mandates and new mandates to access different investment opportunities, illustrating that the arguments in favour of higher allocations to Emerging Markets are resonating and being acted upon by investors.
Phase 2: diversifying investment themes and products
An important strategic objective for Ashmore is to develop and grow its equities business, in order to achieve further product diversification and provide clients with access to a full range of Emerging Markets equity products, from global strategies to specialist, regional and single country strategies.
Equities has performed well this year, with strong relative investment performance being maintained over a broad range of products, including through the volatility in Q3, and net inflows delivered in every quarter to give total net flows into equities of £1.2 billion for the year.
Encouragingly, the client flows are a mix of existing clients recognising the developing investment track record, and new clients making their first allocation to an Ashmore strategy. The prospects for continued growth are good, with the All Cap strategy performing well as it approaches its three-year track record later in 2020.
In the second half of the year, Ashmore launched and seeded a dedicated equity ESG fund, to sit alongside the blended debt ESG fund established in early 2019.
Phase 3: mobilising Emerging Markets capital
Approximately 26% of the Group's assets under management have been sourced from clients domiciled in the Emerging Markets. This capital is managed both on a global basis and by the local asset management platforms where the client either wishes or is required to invest in domestic assets and capital markets. In total, the Group's local asset management platforms manage AuM of US$5.0 billion, or 6% of the Group's total.
Ashmore's Indonesian business achieved a significant milestone in January 2020 when it undertook an IPO and listed on the Jakarta Stock Exchange. There were no shares sold by existing shareholders, meaning that Ashmore remains a committed majority shareholder and fully aligned with the local management team and its significant minority equity stake. The process diversified the shareholder register, raised the profile of the business domestically and regionally, and provided a potential roadmap for the Group's other local platforms to consider at the appropriate stage in their development.
People and culture
The impact of COVID-19 has resulted in significant responses, both at a macro level in terms of fiscal and monetary stimulus, and for individual economies and businesses, most notably with the requirement for employees to work from home. Ashmore has a distinctive team-based culture that has been sustained through its long history of investing in Emerging Markets, and which has enabled it to adapt successfully to this new environment. While the culture lends itself to teams working collaboratively in offices, the business can support the requirements of remote working for as long as is required in order for colleagues to return safely to the Group's offices around the world.
The commitment of the Group's employees means that the business has operated effectively, including notably throughout the more challenging period in the second half of the financial year. I would therefore like to thank all of my colleagues for their impressive dedication, professionalism and commitment to continue to deliver for Ashmore's clients, shareholders and other stakeholders over the course of the past year.
Outlook
The trends in market performance, delivery of outperformance and a stabilisation of client flows seen towards the end of the financial year have continued over the summer months. However, the recovery in Emerging Markets asset prices still has further to go to return to levels that could be considered fair value. The process is likely to take time and has unknown factors, as COVID-19 will continue to have a wide range of impacts on countries and asset prices across the Emerging and Developed Markets and there is ongoing tension between the US and China, which in part is linked to the US presidential election later this year. However, volatility and uncertainty can provide significant opportunities for investors and, as ever, the critical analysis is to determine what is priced in, and therefore whether expected returns compensate for perceived risk.
In this context, the Emerging Markets offer notable value. Economic growth prospects are superior in Emerging Markets and support the outlook for equity markets, currencies are cheap versus the US dollar, bond yields in both nominal and real terms are significantly higher than developed world equivalents, and structural issues such as high indebtedness and a lack of reforms continue to constrain growth in developed nations.
However, the attractions of growth-driven equity returns and high yields also have to be seen against the uncertainties relating to COVID-19 and the worsening economic fundamentals in the developed world that are likely to keep risk aversion high for a period of time.
Ashmore will continue to focus on delivering investment and financial performance for its clients and shareholders, and on ensuring the safety of its employees while planning to return to offices when local conditions permit.
Mark Coombs
Chief Executive Officer
10 September 2020
COVID-19: Meeting the challenge for all stakeholders
The COVID-19 virus has had a profound effect on societies, economies and markets across the world, and there remains significant uncertainty about its future impact. Ashmore's priorities during this period have been to ensure the health and safety of its employees and to continue to focus on delivering value for its stakeholders. While this crisis is unprecedented in recent memory, and has occurred at the same time as an oil price shock, the Group's business model and culture have meant that it has responded effectively to the challenges and maintained its investment, operational and support activities as close to normal as possible.
Operational impact
Although the nature and impact of the COVID-19 pandemic was not predicted, Ashmore's comprehensive Business Continuity Plan was deployed swiftly and delivered an effective response in the context of the rapid development of government guidance, policies and legislation in each of the countries in which the Group operates. Over a two-week period in mid-March, the firm's approximately 300 employees transitioned successfully from full-time office-based roles to working remotely. This was facilitated efficiently due to Ashmore's single consistent global operating model and robust IT infrastructure, as well as the commitment and dedication of all employees at a time of significant uncertainty. The integrity of Ashmore's remote access environment enables effective management of cyber security risks in the remote working period.
Some working practices were changed early in the crisis, such as no face-to-face meetings and a restriction on travel, and while at the time of writing they remain in place it is expected that they will ultimately prove temporary. Nonetheless, the increased use of 'virtual' communications since the start of 2020 is likely to have a lasting impact on behaviour across the industry.
In line with local government guidelines, certain Ashmore offices have begun to return to office-based operations, with strict social distancing rules in place and team rotations. This approach is coordinated centrally at the Group level so best practice and lessons learned can be shared with other locations as they prepare to make the transition back to office-based working.
Communications
The worldwide impact of the pandemic on working practices means that most elements of the asset management industry have had to employ alternative ways of communicating with stakeholders. In Ashmore's case this has included, for example, a significant increase in the use of video calling systems to enable employees to maintain contact with members of their teams and other colleagues, frequent and regular CEO emails to all employees, ongoing regular contact with the Group's regulators, as well as a letter to stakeholders early in the crisis to provide a comprehensive update and reassurance on the Group's response to the developing situation.
Governance
Ashmore's governance structures have continued to operate effectively, with all Board, committee and other management meetings taking place as planned. The Group's Operating Committee met frequently and regularly to manage the developing impact of COVID-19.
Investment processes
The fall in global markets in Q3 resulted in negative investment performance for the year, as described in the Business review. Ashmore's investment processes manage client portfolios through investment committees, all of which have continued to operate effectively notwithstanding some constraints imposed by working remotely. Local offices already participated by telephone in IC meetings and so this has naturally extended to all investment professionals. From a research perspective, interaction with issuers and other counterparties has also transitioned effectively to the new environment through the use of 'virtual' roadshows, video calls and webcasts in the place of travel.
Client interaction
The distribution team faced the challenge of communicating with existing and potential clients as markets experienced a substantial dislocation in February and March, while becoming increasingly restricted in terms of the ability to conduct face-to-face meetings. However, the levels of engagement were high and assisted by an increase in the use of video technology alongside the more traditional methods of communication. While client redemptions increased, Ashmore's focus on liquidity management ensured that they were facilitated even in the more stressed market conditions.
Inevitably some client-related processes have become more protracted in the absence of physical meetings, but as with the investment processes, the transition to a remote working environment has been accomplished without any major issues.
Society
Ashmore encouraged employees, where possible, to support local charitable efforts to meet the serious and pervasive challenges presented by the COVID-19 crisis in the countries in which it operates. The Group made a £250,000 donation to NHS Charities Together in the UK to support the critical efforts of healthcare workers in dealing with the immediate impact of the virus as well as preparing to tackle the longer-term consequences in areas such as resource requirements and staff wellbeing.
Many of the Group's employees made voluntary donations to the Ashmore Foundation, NHS Charities Together and other charities fighting the effects of COVID-19, and Ashmore matched these generous contributions, resulting in further total charitable donations of more than £45,000.
The Group has not furloughed or made redundant any employees as a result of COVID-19 and nor has it voluntarily taken advantage of any government or other support schemes in any of the countries in which it operates.
As the full impact of the virus becomes clearer, the Group will continue to examine ways in which it can contribute to broader recovery efforts in society, including by continuing to support grant organisations in the Emerging Markets through the work of the Ashmore Foundation.
Conclusion
The longer-term impact of COVID-19 remains uncertain with many unknowns, but the principles of investing, the long-term growth opportunity available in Emerging Markets, and the resilience of Ashmore's business model, ensure that the Group is well-positioned to meet the challenges and opportunities resulting from the crisis.
Ashmore's infrastructure continues to support effective remote working, but the Group's culture is centred on teams operating in offices. It is therefore recognised that a transition back to this way of working is desirable, but the health of employees is paramount and so a decision to return to offices will be taken only when it is safe and appropriate to do so, and always in accordance with local government advice.
Market review
Emerging Markets performed well in the first half of the financial year, then the spread of the COVID-19 virus around the world and an oil price shock caused markets to fall in the third quarter. Markets began to recover in Q4 and were more stable towards the end of the year.
There was significant volatility in Emerging Markets returns over the year, with +3% to +7% delivered in the first half, before the market environment deteriorated in Q3 leading to 10% to 15% declines in fixed income markets and 24% in equities over the quarter. With the start of a recovery in asset prices in the fourth quarter the financial year overall saw modest returns in hard currency fixed income indices, of between +1% and +4%, and negative returns in local currency fixed income and equity indices of -3%.
Emerging Markets and policy flexibility
The economic and social impact of the COVID-19 virus has been severe, with a global recession expected in 2020. However, while there are significant uncertainties as to the development of the pandemic, there is a broad consensus of market opinion that expects a gradual economic recovery in 2021, with GDP levels tracing a 'tick' profile over the two years. Importantly, in aggregate the emerging nations are expected to experience a shallower recession and deliver a stronger recovery than the developed world. For example, the IMF's forecasts are for Emerging Markets GDP to fall by 3% in aggregate this year and then rise by 6% next year, compared with an 8% decline in developed world GDP this year and a 5% recovery in 2021.
Of course, there are significant variances between the 155 emerging nations in their economic, political and social structures, and a clear distinction can be made between two broad sets of countries and their ability to deal with the worldwide growth shock and, as necessary, a domestic COVID-19 challenge.
- The greatest policy flexibility is apparent in the larger, typically more diversified economies, that fund themselves predominantly or only in their own currency. Real interest rates are high, inflation is low, currencies are competitive, and so central banks have the ability to cut policy rates and employ quantitative easing (QE) tools, such as asset purchases, as appropriate. These countries also have room for fiscal expansion. While the growth challenge caused by the virus may be significant, this group has policy tools available to be able to meet these challenges. This group is broadly represented across Latin America, Europe, Africa and Asia.
- The other group of nations has a reduced set of policy options, as a consequence of having smaller and narrower economies, and being funded by external creditors in hard currency. These countries need to maintain access to international capital markets and must therefore keep monetary policy relatively tight. Such countries usually rely on external creditors for funding, whether supranational organisations such as the IMF and World Bank or private sector creditors, and will require even greater support from these counterparties. Countries in this group are particularly present in Africa and Latin America.
Ultimately, the structure of an economy, the strength of its institutions, together with the flexibility and quality of policy making, will determine how successfully a country is able to deal with the challenges of the virus pandemic and the worldwide recession.
Developed Markets and policy consequences
For the most part, developed world governments have not addressed the huge increase in public sector debt that resulted from the global financial crisis more than a decade ago, and have lacked any meaningful reform agenda. This has delivered only lacklustre economic growth and persistently low interest rates, but a strong bull market in assets, such as US equities and government bonds, that were supported, directly or indirectly, by central banks' QE policies.
The policy responses by developed world institutions to the COVID-19 pandemic have largely been swift and substantial, encompassing both monetary stimulus including a return to QE and fiscal stimulus in the form of direct support to the employment market, as well as business loan and guarantee schemes. While these actions undoubtedly helped to mitigate the economic impact of the pandemic, they will have consequences that will exacerbate the indebtedness of developed nations, thereby constraining economic growth further, and requiring policy rates to remain extremely low for a prolonged period of time. In this context, and as explained below, Emerging Markets present a favourable medium-term growth outlook, underpinned by ongoing structural reforms, and accompanied by attractive yields.
Implications of a US recession for Emerging Markets
The prospects for the US economy are directly and indirectly relevant to many other countries and can influence investors' portfolio allocations with implications for Emerging Markets. The initial phase of a recession causes a short period of risk aversion, during which capital flows out of perceived riskier asset classes, including the Emerging Markets, and into 'safe havens' such as the US Treasury market, almost irrespective of valuations and return prospects.
The next, usually more prolonged, period involves capital reallocating away from equities and corporate credit as profits fall and defaults rise, and into US Treasuries to take advantage of rate cuts. However, with nominal and real rates in the US at low or even negative levels, it is arguable that capital will seek higher returns elsewhere in the world, resulting in downward pressure on the US dollar and the potential for flows into the faster growing, higher return Emerging Markets. These flows will stimulate domestic demand in financially-constrained economies, underpinning GDP growth further.
Attractive valuations
The fall in global markets in February and March drove valuations across Emerging Markets to extreme levels. For example, the external debt (EMBI GD) index spread widened to over 700 basis points and equities traded at close to book value, neither of which have been experienced in the 12 years since the global financial crisis. Markets began to recover strongly at the end of March, but valuations still look highly attractive, whether in absolute terms, compared with history, or compared with equivalent assets in Developed Markets.
External debt trades at 475 basis points over US Treasuries, nearly three times the historical low (160 basis points) and well above a reasonable estimate of normalised value (300 basis points). Indeed, the index has traded at or wider than this level for only 3% of the trading days over the past decade. The majority of bonds in the index are investment grade, and this sub-component also offers good value with a yield of more than 3% and a spread over US Treasuries of more than 200 basis points.
Local currency bonds yield 4.5%, but with inflation across Emerging Markets well-controlled and near record lows, the real yield is highly attractive at around 2% and especially when compared with negative real yields for equivalent duration government bonds issued by developed countries. Significantly, China has joined the benchmark GBI-EM GD index, effectively providing the first 'safe haven' destination within the asset class. As discussed above, with the potential for medium-term weakness in the US dollar, there is an opportunity for investors to enhance returns from these markets with foreign exchange gains.
Corporate debt has many attractive characteristics when compared with the US high yield (HY) market, for example the Emerging Markets index is highly diversified with 57 countries represented, has a higher average credit rating, and a lower historical default rate. However, as is the case for external debt, the majority of bonds in the index are investment grade (IG). Both the HY and IG components have attractive valuations, with yields in excess of 7% and 3%, respectively.
Equity market performance is typically correlated with the relative growth rates expected between Emerging and Developed Markets. Therefore, as discussed above, the premium growth forecast for emerging countries should underpin outperformance by Emerging Markets equities. This view is further reinforced by the MSCI EM index trading at attractive levels and an expectation that undervalued equity markets will perform strongly as economies start to recover from the impact of the virus pandemic. Indeed there are already tentative signs of a 'first-in, first-out' economic and market recovery in parts of Asia.
Continued development of the Emerging Markets asset classes
Notwithstanding short-term cyclical market movements, there continue to be significant structural characteristics and developments of the fixed income and equity markets that support longer-term outperformance compared with Developed Markets, and therefore also underpin the case for higher investor allocations.
Benchmark indices remain a poor representation of the investment opportunities
The Emerging Markets investment universe is large and diversified, but one of the most striking inefficiencies is the very low level of index representation: only 13% of bonds and 19% of equity market capitalisation are included in benchmark indices. This has a number of important implications:
- the competitive threat of passive substitutes is limited, given the small proportion of the universe that can be replicated passively;
- active management can deliver alpha, whether through active risk against benchmark securities or by investing in non-benchmark assets; and
- liquidity in local currency instruments is increasingly found in the domestic capital markets, as the bonds and shares are owned and traded by domestic institutions. An established network of local market counterparties is therefore a prerequisite to accessing this liquidity on a consistent basis.
While these inefficiencies can be successfully exploited by active management, over time it is desirable to have higher index representation in order to drive higher investor allocations to the asset classes.
In this respect, there have been notable developments in 2020. Over the course of the year, JP Morgan is including Chinese local currency bonds in its GBI-EM GD benchmark index with an eventual weight of 10%. Also, India has taken some tentative steps to increase foreign investor access to its domestic markets, which could enable it to follow the path taken by China in due course.
Structure of fixed income markets
There are approximately 155 developing countries of which fewer than half have issued debt in public markets, the remainder typically relying on organisations such as the IMF for funding. When a country issues public market bonds for the first time, it typically does so in the external (hard currency) markets, since domestic institutional investors and yield curves are not necessarily sufficiently developed to allow significant local currency issuance. Over time, as the country and its institutions and capital markets develop, it will increasingly issue domestic bonds in its own currency. Consequently, in Emerging Markets, the largest and fastest growing fixed income markets are the local currency-denominated sovereign and corporate bond markets, which together represent 82% of all bonds issued by Emerging Markets countries and companies.
This market structure has important implications for the resilience of countries in the face of domestic and external shocks, with a dependence on foreign creditors typically leading to a narrower set of policy options when compared with those countries that are predominantly funded by domestic investors. The effect of this has been seen most recently as many local currency funded nations have been able to deploy fiscal and monetary stimulus in order to manage the economic impact of the worldwide virus pandemic.
Allocations
Developed world investors hold significantly underweight positions in Emerging Markets fixed income and equities, which is at odds with the increasing influence of these countries in the world's economic, political and social affairs. Higher allocations to Emerging Markets will provide investors with access to superior growth and potential returns.
The increasing significance of Emerging Markets is illustrated by the following characteristics:
- 84% of the world's population lives in an Emerging Market country, with typically much more favourable demographics than developed nations;
- Emerging Markets account for 60% of world GDP and 75% of the world's economic growth forecast by the IMF over the five years to 2021;
- GDP per capita of US$13,000 in Emerging Markets is less than a third of the developed world level of US$45,000. The inherent growth potential in the emerging world is illustrated by the fact that the developed world was at the same level of wealth in 1983;
- emerging nations control foreign exchange reserves of nearly US$9 trillion, accounting for more than 75% of total world foreign exchange reserves;
- Emerging Markets represent only 25% of worldwide bond issuance and 33% of world equity market capitalisation, providing significant growth opportunities; and
- the weights of Emerging Markets in global equity and bond indices are relatively low, at between 10% and 20% respectively, but increasing over time as markets grow and reforms allow better access.
In this context, the typical investor has a target weighting of below 10%, which over the longer term will result in below par returns compared with a portfolio that has at least a neutral weighting to Emerging Markets through the cycle.
Market outlook
There is a broad consensus of opinion that the world economy will recover from the current recessionary conditions over the course of 2021, although there will be significant variations in the experiences of individual countries and there is uncertainty with respect to the development and impact of the COVID-19 pandemic. The US presidential election in November 2020 is an additional source of potential market volatility.
While this backdrop is potentially challenging, periods of market volatility such as that experienced in early 2020 typically provide significant investment return opportunities as short periods of extreme risk aversion lead to mispriced assets. Although there has been something of a market recovery since the lows seen in March, there remains substantial value available across a wide range of equity and fixed income markets in the emerging world. Furthermore, the relative attractions of Emerging Markets have arguably been enhanced by the return to aggressively looser monetary policy, including QE, and debt-funded fiscal stimulus by developed countries.
Notwithstanding the present uncertainty, investors are increasingly recognising the superior long-term economic growth prospects of Emerging Markets compared with the developed world, and when set against the notable value available in those markets and investors' underweight positions, this should result in a continued trend of higher allocations over time. Ashmore's experience, specialism and active management approach mean it is well placed to benefit from this growth opportunity.
Investment themes
Ashmore's investment teams have been focused on Emerging Markets investing for more than 25 years. Ashmore has established a diversified range of eight headline investment themes with focused strategies under each theme delivering Emerging Markets exposures in, for example, global or specific regional or country funds, as well as dedicated investment grade and high yield products.
The Group's products are available in a wide range of fund structures, covering the full liquidity spectrum from daily-dealing pooled funds through to multi-year locked-up structures. Ashmore provides investors with access to new investment strategies as Emerging Markets continue to develop.
External debt
The external debt benchmark index (EMBI GD) delivered a modest positive return of +0.5% over the 12 months, but with significant variations by quarter, and a marked difference between investment grade (+8.3%) and high yield bonds (-8.2%). Over the past three years, Ashmore's external debt composite has returned +0.7% on a gross annualised basis, compared with +3.6% for the benchmark.
Countries that have predominantly funded themselves in external debt markets will struggle to manage the twin challenges of the global virus pandemic and the consequent growth shock. The support of creditors, be they supranational organisations or private sector lenders, will be crucial to a country's ability to maintain long-term access to funding, but also requires governments to exhibit a clear willingness to reform where necessary.
Valuations reached exceptional levels in the market lows of March 2020, with the index spread over US Treasuries exceeding 700 basis points. In an index of 74 countries, and with the majority rated investment grade, this clearly reflected the impact of short-term risk aversion and a desire for US dollar liquidity rather than being an accurate reflection of the underlying economic and political fundamentals of all the constituent countries. Although markets have begun to recover, there remains notable value in the asset class, with the spread still at an elevated level of 475 basis points at the year end, nearly three times the historical low of 160 basis points and in excess of its recent level of 300 basis points.
Local currency
The GBI-EM GD index fell -2.8% over the year, with a positive return from rates offset by US dollar strength. As with the external debt markets, there was significant volatility on a quarter-by-quarter basis, especially in the second half of the year. Over the past three years, Ashmore's local currency composite has returned +0.9% on a gross annualised basis, compared with +1.1% for the benchmark.
Local currency markets are increasingly resilient as a result of the increasing adoption of monetary policy frameworks that successfully target inflation, and domestic ownership that mitigates the impact of foreign capital flows. Capital market reforms are important and providing greater access to foreign investors over time will result in more representative indices, as is illustrated by China's inclusion in the GBI-EM GD index in 2020.
The attractiveness of local currency bonds is derived from both rates and foreign exchange. Inflation continues to be well-controlled and is close to record lows, enabling central banks across a large number of emerging countries to continue to be accommodating with monetary policies. The resultant real yield for the index of around 2% is attractive in its own right but even more so when set against the negative real yields prevailing in most major developed world bond markets of similar duration. Looking at FX, the consequences of debt-funded fiscal stimulus and a recession in the US should be to create inflation but also to restrict the Fed's ability to raise rates significantly for the foreseeable future and to undermine productivity, hence the US dollar is likely to enter a period of weakness against other global currencies including those in Emerging Markets. Local currency bonds therefore offer potentially the highest medium-term returns of the main fixed income asset classes through a combination of attractive yields and potential capital gains from currencies.
Corporate debt
Corporate debt performed well over the 12 months with the CEMBI BD index returning +3.7%, although as seen in the sovereign market, there was a notable difference between investment grade performance of +5.7% and high yield returns of +1.0%. Over the past three years, Ashmore's corporate debt composite has returned +3.8% on a gross annualised basis, compared with +4.5% for the benchmark. The short duration strategy has underperformed, with three-year gross annualised returns of -4.6% compared with +3.5% for its benchmark, and consequently it experienced net outflows for the 12-month period.
The corporate bond index is highly diversified with nearly 700 issuers across 57 countries, and with the majority of bonds being investment grade rated. With a yield of 4.9%, and 7.3% for high yield bonds, this is an attractive asset class when compared with the US HY market, which offers a similar yield (7.7%) but is less diversified and with companies that have higher leverage and often as a result of financial engineering rather than for operational purposes. Furthermore, the Emerging Markets asset class includes quasi sovereign issuers, which means that implicit or explicit support by the sovereign can be a factor in assessing credit risk. These factors are reflected in the long-run default rates for the two markets, with the US market experiencing a 30% higher default rate over the past three decades of 4.3% compared with 3.3% for Emerging Markets.
Blended debt
The standard blended debt benchmark (50% external debt, 25% local currency bonds and 25% EMFX) fell by -1.3% over the year, with positive returns in hard currency markets offset by weaker local currency returns, as described for each of the asset classes above. Over the past three years, Ashmore's blended debt composite has returned +0.5% on a gross annualised basis, compared with +2.2% for the standard benchmark.
The blended debt strategy provides access to a broad and actively-managed portfolio of Emerging Markets fixed income securities, which is a popular approach for institutional or intermediary retail clients that are making their first investment in Emerging Markets. As an investor's experience of Emerging Markets grows, incremental allocations can be made into dedicated products in the underlying fixed income asset classes. Additionally, the blended debt theme allows institutional investors to define a bespoke performance benchmark, through which a preference for one or more asset classes can be expressed.
Equities
The MSCI EM index fell by -3.4% over the 12 months, with particular volatility in the second half of the year as markets rapidly discounted a global recession as a consequence of the COVID-19 virus and then began to reflect expectations of a recovery supported by extraordinary fiscal and monetary stimulus. Ashmore's Active Equity composite has returned +4.4% on a gross annualised basis over the past three years, compared with +1.9% for the benchmark, and the Small Cap composite has returned +0.6% annualised over the past three years compared with -3.0% for its benchmark.
The performance of equity markets tends to be correlated over the longer term with economic growth, although the highly diverse nature of the Emerging Markets equity universe, in terms of industries as well as geographically, requires active management and a combination of bottom-up company analysis and top-down macro economic insights to deliver optimal returns.
Emerging Markets will continue to enjoy a growth premium over the developed world, and many countries are well-equipped from a policy perspective to deal with the challenges presented by the COVID-19 pandemic. Indeed, there is a possibility that parts of Asia, having been the first to deal with the issue, could also be the first to deliver a sustained economic and market recovery. The outlook for equity markets is also underpinned by the attractive valuations available, compared with history but also the Developed Markets, where valuations continue to be influenced by central bank policies such as QE.
Business review
Ashmore's financial performance over the year reflected a strong first half, the impact of the weak global markets environment in Q3 and the start of a recovery in the final quarter. Over the 12-month period, AuM declined by 9% but with higher average AuM levels, net revenue increased by 5% and adjusted EBITDA was 10% higher. Diluted EPS increased by 3% and the Group's balance sheet remains liquid and well-capitalised with capital resources of £702.5 million and excess regulatory capital of £555.2 million.
Summary non-GAAP financial performance
The table below reclassifies items relating to seed capital and the translation of non-Sterling balance sheet positions. This aids clarity and comprehension of the Group's operating performance, by excluding the mark-to-market volatility of these items, and provides a more meaningful comparison with the prior year. For the purposes of presenting 'Adjusted' profits, personnel expenses have been adjusted for the variable compensation on foreign exchange translation gains and losses. Non-GAAP alternative performance measures (APMs) are defined and explained below.
|
|
|
Reclassification of |
|
|
|
|
£m |
FY2019/20 Reported |
Seed capital- |
Foreign exchange translation |
FY2019/20 Adjusted |
FY2018/19 Adjusted |
|
Management fees net of distribution costs |
315.5 |
- |
- |
315.5 |
294.3 |
|
Performance fees |
3.9 |
- |
- |
3.9 |
2.8 |
|
Other revenue |
4.1 |
- |
- |
4.1 |
5.9 |
|
Foreign exchange |
7.0 |
- |
(5.5) |
1.5 |
5.1 |
|
Net revenue |
330.5 |
- |
(5.5) |
325.0 |
308.1 |
|
Investment securities |
(19.1) |
19.1 |
- |
- |
- |
|
Third-party interests |
7.5 |
(7.5) |
- |
- |
- |
|
Personnel expenses |
(82.6) |
- |
1.1 |
(81.5) |
(82.8) |
|
Other expenses excluding depreciation & amortisation |
(23.2) |
2.2 |
- |
(21.0) |
(23.5) |
|
EBITDA |
213.1 |
13.8 |
(4.4) |
222.5 |
201.8 |
|
EBITDA margin |
64% |
- |
- |
68% |
66% |
|
Depreciation & amortisation |
(3.4) |
- |
- |
(3.4) |
(4.8) |
|
Operating profit |
209.7 |
13.8 |
(4.4) |
219.1 |
197.0 |
|
Net finance income/expense |
12.0 |
(6.2) |
- |
5.8 |
7.7 |
|
Associates & joint ventures |
(0.2) |
- |
- |
(0.2) |
(0.3) |
|
Adjusted profit before tax |
221.5 |
7.6 |
(4.4) |
224.7 |
204.4 |
|
Foreign exchange translation |
- |
- |
4.4 |
4.4 |
4.8 |
|
Seed capital-related items |
- |
(7.6) |
- |
(7.6) |
10.7 |
|
Profit before tax |
221.5 |
- |
- |
221.5 |
219.9 |
Assets under management
AuM fell by 9% to US$83.6 billion as a result of negative market performance of US$8.1 billion, which, as described in the Chief Executive's review and Market review, was the result of the market conditions experienced in Q3 and related to the COVID-19 pandemic, a fall in the oil price and tighter liquidity conditions across global markets. Over the 12-month period, the Group had a net outflow of US$0.1 billion. Average assets under management increased by 11% to US$89.6 billion (FY2018/19: US$80.5 billion).
Gross subscriptions of US$24.3 billion were slightly higher than in the prior year and represent 26% of opening AuM (FY2018/19: US$23.7 billion, 32%). Gross redemptions increased to US$24.4 billion, or 27% of opening AuM (FY2018/19: US$13.0 billion, 18%).
There was good demand over the period across the broad range of investment themes, but with particular strength in the local currency, corporate debt, blended debt and equities themes. Approximately 70% of institutional mandate subscriptions were from existing clients increasing their allocations, with a further 10% the result of clients broadening their exposure to Emerging Markets investment opportunities through additional mandates. New institutional client mandates therefore represented 20% of subscriptions and were mainly invested in the equities and external debt themes.
The increase in redemptions compared with the prior year was primarily in the corporate debt and local currency themes and biased towards the second half of the year when market conditions were significantly more volatile. In particular, intermediary retail and institutional clients reacted to weaker performance in the Short Duration strategy, and institutional clients sought US dollar liquidity and reduced risk in local currency funds.
For the year as a whole, net flows were essentially flat at -US$0.1 billion, with institutional clients delivering net inflows of US$1.9 billion, largely offsetting the net outflow from intermediary retail clients of US$2.0 billion.
Investor profile
The Group's client base remains well diversified and biased towards institutions, with no significant changes in composition by client domicile or client type, other than a reduction in the proportion of AuM sourced from intermediary retail clients, from 15% to 11%, and an increase in AuM from corporates and financial institutions, particularly those focused on investment grade mandates, from 18% to 22%. In total, 26% of the Group's AuM has been sourced from clients domiciled in Emerging Markets (30 June 2019: 30%).
AuM by investor type
|
|
2020 % |
2019 % |
|
Central banks |
11 |
12 |
|
Sovereign wealth funds |
7 |
7 |
|
Governments |
16 |
16 |
|
Pension plans |
29 |
29 |
|
Corporates/financial institutions |
22 |
18 |
|
Funds/sub-advisers |
3 |
2 |
|
Third-party intermediaries |
11 |
15 |
|
Foundations/endowments |
1 |
1 |
AuM by investor geography
|
|
2020 % |
2019 % |
|
Americas |
23 |
26 |
|
Europe ex UK |
28 |
25 |
|
UK |
9 |
9 |
|
Middle East and Africa |
17 |
17 |
|
Asia Pacific |
23 |
23 |
Segregated accounts including white-labelled funds represent 75% of AuM (30 June 2019: 66%), the higher proportion being a consequence of significant new segregated mandate wins and additional allocations, as well as the net redemptions from mutual funds in the year.
Ashmore's main mutual fund platforms are in Europe and the US. The European SICAV range comprises 30 funds with AuM of US$12.1 billion (30 June 2019: 30 funds, US$19.6 billion) and the US 40-Act platform manages US$2.4 billion in 10 funds (30 June 2019: eight funds, US$3.7 billion). The lower level of mutual fund AuM is the result of negative market performance across a broad range of asset classes, particularly in the third quarter of the financial year, and redemptions that were concentrated in short duration and local currency bond funds.
AuM movements by investment theme
The AuM by theme as classified by mandate is shown in the table below. Reclassifications typically occur when a fund's investment objectives, investment guidelines or performance benchmark change such that its characteristics cause it to be included in a different theme.
|
Theme |
AuM |
Performance |
Gross |
Gross |
Net flows |
Reclassifications/other |
AuM |
|
External debt |
19.1 |
(1.1) |
2.3 |
(3.2) |
(0.9) |
- |
17.1 |
|
Local currency |
19.7 |
(1.7) |
5.8 |
(5.1) |
0.7 |
- |
18.7 |
|
Corporate debt |
15.5 |
(1.9) |
6.7 |
(9.2) |
(2.5) |
(0.5) |
10.6 |
|
Blended debt |
24.3 |
(2.2) |
4.5 |
(3.8) |
0.7 |
0.5 |
23.3 |
|
Equities |
4.4 |
(1.0) |
2.2 |
(1.0) |
1.2 |
- |
4.6 |
|
Alternatives |
1.6 |
(0.2) |
0.1 |
(0.1) |
- |
- |
1.4 |
|
Multi-asset |
0.5 |
(0.1) |
- |
(0.1) |
(0.1) |
- |
0.3 |
|
Overlay/liquidity |
6.7 |
0.1 |
2.7 |
(1.9) |
0.8 |
- |
7.6 |
|
Total |
91.8 |
(8.1) |
24.3 |
(24.4) |
(0.1) |
- |
83.6 |
AuM as invested
The table below shows AuM 'as invested' by underlying investment theme, which adjusts from the 'by mandate' presentation to take account of the allocation into the underlying asset classes of the multi-asset and blended debt themes, and of crossover investment from within certain external debt funds.
AuM as invested
|
|
2020 % |
2019 % |
|
External debt |
38 |
39 |
|
Local currency |
28 |
29 |
|
Corporate debt |
17 |
17 |
|
Equities |
6 |
5 |
|
Alternatives |
2 |
2 |
|
Overlay/liquidity |
9 |
8 |
The Group's AuM by geography of investment remains diversified with 40% invested in Latin America, 24% in Asia Pacific, 15% in the Middle East and Africa, and 21% in Eastern Europe.
Revenues
Net revenue increased 5% to £330.5 million as a result of growth in recurring net management fee income. On an adjusted basis, excluding foreign-exchange translation effects, net revenue increased 5% to £325.0 million.
Net revenue
|
|
FY2019/20 |
FY2018/19 |
|
Net management fees |
315.5 |
294.3 |
|
Performance fees |
3.9 |
2.8 |
|
Other revenue |
4.1 |
5.9 |
|
FX: hedges |
1.5 |
5.1 |
|
Adjusted net revenue |
325.0 |
308.1 |
|
FX: balance sheet translation |
5.5 |
6.2 |
|
Net revenue |
330.5 |
314.3 |
The Group's management fee income, net of distribution costs, increased 7% to £315.5 million, driven by an 11% rise in average AuM to US$89.6 billion (FY2018/19: US$80.5 billion). Fee income benefited from the weaker average GBP:USD rate of 1.2637 (FY2018/19: 1.2958) and also reflects a decline in the average net management fee margin from 48bps to 45bps. At constant FY2018/19 average exchange rates, net management fees increased by 5%.
The three basis points decline in the net management fee margin compared with the prior year is the result of net flows into existing and new large mandates (1.5 basis points), investment theme mix (1 basis point) and mutual fund net redemptions in the corporate debt and local currency themes (0.5 basis point). Other factors such as competition and product mix effects broadly offset each other.
Fee income and net management fee margin by investment theme
The table below summarises net management fee income after distribution costs, performance fee income, and average net management fee margin by investment theme.
|
Theme |
Net management |
Net management |
Performance |
Performance |
Net management |
Net management |
|
External debt |
59.4 |
55.1 |
2.5 |
0.5 |
41 |
44 |
|
Local currency |
60.2 |
54.2 |
- |
0.8 |
38 |
39 |
|
Corporate debt |
51.3 |
51.9 |
0.4 |
0.2 |
50 |
56 |
|
Blended debt |
94.6 |
81.2 |
0.9 |
1.0 |
49 |
49 |
|
Equities |
23.0 |
25.1 |
- |
- |
66 |
76 |
|
Alternatives |
15.4 |
15.1 |
0.1 |
0.3 |
139 |
129 |
|
Multi-asset |
3.0 |
4.3 |
- |
- |
100 |
77 |
|
Overlay/liquidity |
8.6 |
7.4 |
- |
- |
15 |
16 |
|
Total |
315.5 |
294.3 |
3.9 |
2.8 |
45 |
48 |
Performance fees of £3.9 million were generated in the period, a similar level to the prior year. At 30 June 2020, 13% of the Group's AuM was eligible to earn performance fees (30 June 2019: 14%), of which a substantial proportion is subject to rebate agreements. The Group continues to expect net management fee income to generate the substantial majority of its net revenues. No performance fees were realised by funds with an August year end.
Translation of the Group's non-Sterling assets and liabilities, excluding seed capital, resulted in an unrealised foreign exchange gain of £5.5 million reflecting a lower GBP:USD dollar rate at the period end and active management of the Group's foreign exchange balances. The net realised and unrealised gain on the Group's foreign exchange hedges was £1.5 million. Therefore, the total foreign exchange gain recognised in revenues was £7.0 million (FY2018/19: £11.3 million gain).
Other revenue fell slightly to £4.1 million as this year there were fewer project management and advisory fees related to funds in the alternatives theme.
Operating costs
Total operating costs of £109.2 million include £2.2 million of expenses incurred by seeded funds that are required to be consolidated, as disclosed in note 20. On an adjusted basis, excluding the impact of seed capital and the variable compensation accrual on foreign exchange translation gains, operating costs were reduced by 5% to £105.9 million (FY2018/19: £111.1 million). At constant FY2018/19 average exchange rates, adjusted operating costs declined by 5% compared with the prior year period.
Adjusted operating costs before variable compensation were 5% lower at £52.0 million (FY2018/19: £54.8 million), with an increase in fixed staff costs more than offset by an 11% reduction in other operating costs and a lower depreciation and amortisation expense.
The Group's headcount was stable over the year at 306 employees, of which 291 are involved in investment management-related activities (30 June 2019: 307 and 288, respectively), and the average headcount was 3% higher than in the prior year. The Group's fixed staff costs of £27.6 million increased by 4% compared with the prior year period, and increased by 2% at constant exchange rates.
Other operating costs, excluding consolidated fund expenses and depreciation and amortisation, were 11% lower at £21.0 million (FY2018/19: £23.5 million), primarily due to the adoption of IFRS 16 as described below. Other operating costs were lower in the second half of the year compared with the first half due to reductions in travel and office-related costs as a result of the restrictions associated with the COVID-19 pandemic, and notwithstanding the £0.3 million cost of charitable donations.
The accrual for variable compensation was £55.0 million, 5% lower than the prior year and representing 19.5% of EBVCIT (FY2018/19: £57.7 million, 22.5%). The Group's financial and operating performance this year was solid, but the lower charge recognises the more challenging conditions of the second half of the year and the consequent impact upon Ashmore's investment performance and assets under management.
The combined depreciation and amortisation charges for the period were £3.4 million.
The adoption of IFRS 16 had a small negative impact of £0.2 million on profit before tax in the current period. It removed the rental expense relating to the Group's properties (£2.8 million) and replaced it with depreciation of the right-of-use asset (£2.5 million) and a lease finance expense (£0.5 million).
Operating costs
|
|
FY2019/20 |
FY2018/19 |
|
Fixed staff costs |
(27.6) |
(26.5) |
|
Other operating costs |
(21.0) |
(23.5) |
|
Depreciation & amortisation |
(3.4) |
(4.8) |
|
Operating costs before VC |
(52.0) |
(54.8) |
|
Variable compensation |
(55.0) |
(57.7) |
|
VC accrual on FX gains/losses |
1.1 |
1.4 |
|
Adjusted operating costs |
(105.9) |
(111.1) |
|
Consolidated funds costs |
(2.2) |
(3.3) |
|
Add back VC accrual on FX gains/losses |
(1.1) |
(1.4) |
|
Total operating costs |
(109.2) |
(115.8) |
Adjusted EBITDA
Adjusted EBITDA increased by 10% from £201.8 million to £222.5 million, higher than the 5% rise in adjusted net revenue due to the 5% reduction in adjusted operating costs. Consequently, the adjusted EBITDA margin expanded slightly to 68% (FY2018/19: 66%). The impact of IFRS 16 contributed 0.9% to the adjusted EBITDA margin.
Finance income
Net finance income of £12.0 million (FY2018/19: £17.4 million) includes items relating to seed capital investments, which are described in more detail below. Excluding these items, net interest income for the period was £5.8 million (FY2018/19: £7.7 million) with the reduction being primarily a consequence of higher cash holdings in US dollars with lower prevailing interest rates.
Profit before tax
Statutory profit before tax of £221.5 million was 1% higher than the prior year (FY2018/19: £219.9 million) reflecting the positive operating performance offset by mark-to-market losses incurred in the second half of the year on the Group's seed capital investments.
Taxation
The majority of the Group's profit is subject to UK taxation. Of the total current tax charge for the year of £38.7 million (FY2018/19: £41.8 million), £24.7 million relates to UK corporation tax (FY2018/19: £36.3 million).
The Group's effective tax rate for the financial year is 16.6% (FY2018/19: 17.5%), which is lower than the prevailing UK corporation tax rate of 19.0%. This reflects the impact of the geographic mix of the Group's profits in the period, non-taxable unrealised seed capital losses and the valuation of deferred tax assets relating to share-based remuneration provided to employees. Note 12 to the financial statements provides a reconciliation of this difference compared with the UK corporation tax rate.
Earnings per share
Basic earnings per share for the period increased by 3% to 27.4 pence (FY2018/19: 26.6 pence) and diluted earnings per share increased by 3% to 25.7 pence (FY2018/19: 25.0 pence).
On an adjusted basis, excluding the effects of seed capital items, foreign exchange translation and relevant tax, diluted earnings per share increased by 12% to 26.1 pence (FY2018/19: 23.4 pence).
Balance sheet
Ashmore's policy is to maintain a strong balance sheet through market cycles in order to meet regulatory capital requirements, to support the commercial demands of current and prospective investors, and to fund strategic development opportunities across the business.
As at 30 June 2020, total equity attributable to shareholders of the parent was £856.4 million (30 June 2019: £843.2 million). Capital resources available to the Group totalled £702.5 million as at 30 June 2020, equivalent to 99 pence per share, and significantly exceeded the Group's regulatory capital requirement of £147.3 million, equivalent to 21 pence per share. The Group has no debt.
Cash
Ashmore's business model consistently delivers a high conversion rate of operating profits to cash. Based on operating profit of £209.7 million for the period (FY2018/19: £202.8 million), the Group generated £254.9 million of cash from operations (F2018/19: £211.2 million). The operating cash flows after excluding consolidated funds represent 116% of the adjusted EBITDA for the period of £222.5 million (FY2018/19: 106%).
Cash and cash equivalents by currency
|
|
30 June 2020 |
30 June 2019 |
|
Sterling |
66.0 |
157.8 |
|
US dollar |
391.1 |
269.5 |
|
Other |
43.8 |
49.9 |
|
Total |
500.9 |
477.2 |
The 10% increase in adjusted EBITDA and continued efficient conversion of profits to cash, after allowing for items such as additional advance payments of corporation tax and the purchase of shares, resulted in an increase in the Group's cash and cash equivalents compared with the prior year end, with active management of the Group's foreign exchange exposures resulting in a higher US dollar balance.
Seed capital investments
The Group's actively managed seed capital programme continues to support growth in third-party AuM with more than US$8.5 billion of AuM in funds that have been seeded, representing 10% of total Group AuM.
During the financial year, the Group made new seed investments of £51.4 million and realised £84.0 million from previous investments. The consequent net redemption of £32.6 million together with unrealised market-to-market losses of £6.8 million means the market value of the Group's seed capital investments reduced from £277.8 million as at 30 June 2019 to £238.4 million as at 30 June 2020. Ashmore has also made seed capital commitments of £20.0 million to funds in the alternatives theme that were undrawn at the period end, giving a total committed value for the Group's seed capital programme of approximately £260 million.
As at 30 June 2020, the original cost of the Group's current seed capital investments was £214.1 million, representing 28% of Group net tangible equity. More than two-thirds of the Group's seed capital is held in funds with better than one-month dealing frequency, such as SICAV or US 40-Act mutual funds.
The majority of the new investments were into corporate debt and equity funds, supporting product diversification and AuM growth within Phase 2 of the Group's strategy. The redemptions were mainly in the equities and local currency themes as a consequence of client flows, and also in the alternatives theme as capital was returned to investors.
Seed capital market value by currency
|
|
30 June 2020 |
30 June 2019 |
|
US dollar |
213.7 |
250.7 |
|
Colombian peso |
13.9 |
14.8 |
|
Other |
10.8 |
12.3 |
|
Total market value |
238.4 |
277.8 |
The table below summarises the principal IFRS line items to assist in the understanding of the financial impact of the Group's seed capital programme. The seed capital investments generated a total loss of £7.6 million in the period (FY2018/19: £10.7 million gain) including a realised gain of £4.0 million. This comprises a £9.0 million mark-to-market loss in respect of consolidated funds, including £4.8 million of finance income, and a £1.4 million gain in respect of unconsolidated funds that is reported in finance income.
Financial impact of seed capital investments
|
|
FY2019/20 |
FY2018/19 |
|
Consolidated funds (note 20): |
|
|
|
Gains/(losses) on investment securities |
(19.1) |
0.5 |
|
Change in third-party interests in |
7.5 |
3.8 |
|
Operating costs |
(2.2) |
(3.3) |
|
Finance income |
4.8 |
5.5 |
|
Sub-total: consolidated funds |
(9.0) |
6.5 |
|
|
|
|
|
Unconsolidated funds (note 8): |
|
|
|
Market return |
1.6 |
3.3 |
|
Foreign exchange |
(0.2) |
0.9 |
|
Sub-total: unconsolidated funds |
1.4 |
4.2 |
|
|
|
|
|
Total seed capital profit/(loss) |
(7.6) |
10.7 |
|
- realised |
4.0 |
2.4 |
|
- unrealised |
(11.6) |
8.3 |
Foreign exchange
The majority of the Group's fee income is received in US dollars and it is the Group's policy to hedge up to two-thirds of the notional value of budgeted foreign currency-denominated net management fees, using either forward or option foreign exchange contracts. Ashmore's Foreign Exchange Management Committee determines the proportion of budgeted fee income to hedge or sell by regular reference to expected non-US dollar, and principally Sterling, cash requirements. Foreign currency assets and liabilities, including cash, are marked to market at the period end exchange rate with movements reported in either revenues or other comprehensive income.
Goodwill and intangible assets
At 30 June 2020, goodwill and intangible assets on the Group's balance sheet totalled £89.7 million (30 June 2019: £87.3 million). The movement in the period is the result of an amortisation charge of £0.2 million (FY2018/19: £4.1 million) and a foreign exchange revaluation gain in reserves of £2.6 million (FY2018/19: £3.4 million gain).
Shares held by Employee Benefit Trust (EBT)
The Group's EBT purchases and holds shares in anticipation of the vesting of share awards. During the second half of the year, the EBT actively acquired shares to satisfy future employee share awards. At 30 June 2020, the EBT owned 56,477,466 ordinary shares (30 June 2019: 40,355,103 ordinary shares), representing 7.9% of the Group's issued share capital (30 June 2019: 5.7%).
Regulatory capital
Ashmore is subject to consolidated regulatory capital requirements, whereby the Board is required to assess the degree of risk across the Group's business, and the Group is required to hold sufficient capital against these risks.
Through the Internal Capital Adequacy Assessment Process (ICAAP) the Board has determined the amount of Pillar II capital required to be £147.3 million (30 June 2019: £121.0 million). The increase is primarily the result of higher levels of foreign currency and seed capital positions and increased market volatility during the second half of the financial year leading to a higher market risk requirement.
The Group has total capital resources of £702.5 million as at 30 June 2020, equivalent to 99 pence per share, giving a solvency ratio of 377% and excess regulatory capital of £555.2 million. Therefore, the Board is satisfied that the Group is adequately capitalised.
Dividend
The Board intends to pay a progressive ordinary dividend over time, taking into consideration factors such as the prospects for the Group's earnings, demands on the Group's financial resources, and the markets in which the Group operates.
Consistent with this approach, the Directors have recommended a final dividend of 12.10 pence per share for the year ending 30 June 2020 (FY2018/19: 12.10 pence), which if approved by shareholders will be paid on 11 December 2020 to all shareholders on the register on 6 November 2020. Total dividends paid and recommended for the year are 16.90 pence (FY2018/19: 16.65 pence), which are covered 1.5x by diluted earnings per share.
Tom Shippey
Group Finance Director
10 September 2020
Alternative performance measures
Ashmore discloses non-GAAP financial alternative performance measures (APMs) in order to assist shareholders' understanding of the operational performance of the Group during the accounting period and to make comparisons with prior periods.
The calculation of APMs is consistent with the financial year ending 30 June 2019 and unless otherwise stated reconciliations to statutory IFRS results are provided in the Business review. Historical reconciliations of APMs to statutory IFRS results can be found in the respective interim financial reports and annual reports and accounts.
Net revenue
As shown on the face of the consolidated statement of comprehensive income, net revenue is total revenue less distribution costs and including foreign exchange. This provides a comprehensive view of the revenues recognised by the Group in the period.
Net management fee margin
The net management fee margin has been included as an APM to increase transparency and aid understanding of the Group's performance in the period. It is defined as the ratio of management fees less distribution costs to average assets under management for the period, and is a commonly-used industry performance measure.
Variable compensation ratio
The charge for employee variable compensation as a proportion of earnings before variable compensation, interest and tax (EBVCIT). The linking of variable annual pay awards to the Group's profitability is one of the principal methods by which the Group controls its operating costs. The charge for variable compensation is a component of personnel expenses.
EBVCIT is defined as operating profit excluding the charge for variable compensation and seed capital-related items. The latter comprises gains/losses on investment securities; change in third-party interests in consolidated funds; and other expenses in respect of consolidated funds.
EBITDA
The standard definition of earnings before interest, tax, depreciation and amortisation is operating profit before depreciation and amortisation. It provides a view of the operating performance of the business before certain non-cash items, financing income and charges, and taxation.
Adjusted net revenue, adjusted operating costs and adjusted EBITDA
Adjusted figures exclude items relating to foreign exchange translation and seed capital. This provides a better understanding of the Group's operational performance excluding the mark-to-market volatility of foreign exchange translation and seed capital investments. These adjustments are merely reclassified within the adjusted profit and loss account, leaving statutory profit before tax unchanged.
Adjusted EBITDA margin
The ratio of adjusted EBITDA to adjusted net revenue, both of which are defined above. This is an appropriate measure of the Group's operational efficiency and its ability to generate returns for shareholders.
Conversion of operating profits to cash
This compares adjusted EBITDA to cash generated from operations excluding consolidated funds, and is a measure of the effectiveness of the Group's operations at converting profits to cash.
Risk Management
In accordance with provision 29 of the 2018 version of the UK Corporate Governance Code, the Board is ultimately responsible for the Group's risk management and internal control systems and for reviewing their effectiveness. Such systems and their review are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.
Ashmore considers a number of risks and has described in the table below those that is has assessed as being most significant in this period, together with examples of associated controls and mitigants. Reputational and conduct risks are common to most aspects of the strategy and business model.
The Group considers the assessment and management of emerging risks within its internal control framework, examples of which are:
- the impact of passive funds on the asset management industry;
- market and/or commercial impact of terrorism;
- global political uncertainty;
- high level of new regulatory obligations for the industry;
- impact of a low oil price; and
- the impact of the COVID-19 pandemic, with specific effects also considered under relevant principal risks and their associated controls and mitigants.
Principal risks and associated controls and mitigants
|
Description of principal risks |
|
Examples of associated controls and mitigants |
Strategic and business risks (Responsibility: Ashmore Group plc Board) |
||
|
- Long-term downturn in Emerging Markets fundamentals/technicals/sentiment, and impact of broader industry changes including ESG and climate change risks |
|
- Group strategy is reviewed and approved by a Board with relevant industry experience - Diversification of investment capabilities and products - Ashmore has a strong balance sheet with no debt |
|
- Market capacity issues and increased competition |
|
- Experienced Emerging Markets investment professionals, with deep market knowledge, participate in investment committees - Periodic investment theme capacity reviews - Barriers to entry remain high, e.g. demonstration of long-term investment track record |
|
- Failure to understand and plan for the potential impact of investor sentiment and regulatory changes relating to sustainability and climate change |
|
- Oversight by ESG Committee, which has overall responsibility for Ashmore's sustainability and responsible investing framework across its corporate and investment activities - Head of Sustainability provides updates to the Board - Dedicated ESG funds |
Client risks (Responsibility: Product Committee and Group Risk and Compliance Committee) |
||
|
- Inappropriate marketing strategy and/or ineffective management of existing and potential fund investors and distributors, including impact of net outflows and fee margin pressure |
|
- Frequent and regular Product Committee meetings review product suitability and appropriateness - Experienced distribution team with appropriate geographic coverage - Investor education to ensure understanding of Ashmore investment themes and products |
|
- Inadequate client oversight including alignment of interests |
|
- Monitoring of client-related issues including a formal complaints handling process - Compliance and legal oversight to ensure clear and fair terms of business and disclosures, and appropriate client communications and financial promotions - Global distribution team appropriately structured for institutional and intermediary retail clients |
Treasury risks (Responsibility: Chief Executive Officer and Group Finance Director) |
||
|
- Inaccurate financial projections and hedging of future cash flows and balance sheet |
|
- Defined risk appetite, and risk appetite measures updated quarterly - Group foreign exchange (FX) hedging policy and FX and Liquidity Management Committee |
Investment risks (Responsibility: Group Investment Committees) |
||
|
- Downturn in long-term performance |
|
- Consistent investment philosophy over more than 27 years and numerous market cycles, with dedicated Emerging Markets focus including country visits and network of local offices |
|
- Manager non-performance including i) ineffective leverage, cash and liquidity management and similar portfolios being managed inconsistently; and ii) neglect of duty, market abuse |
|
- Funds in the same investment theme are managed by consistent investment management teams, and allocations approved by investment committees - Comprehensive policies in place to cover, for example, conflicts, - Tools to manage liquidity issues as a result of redemptions including restrictions on illiquid exposures and ability to use in specie redemptions |
|
- Insufficient number of trading counterparties |
|
- Group Trading counterparty policy and sufficient counterparties to provide access to liquidity. Extensive trading relationships developed over the firm's history of focusing on Emerging Markets investing |
Operational risks (Responsibility: Group Risk and Compliance Committee) |
||
|
- Inadequate security of information including cyber security and data protection |
|
- Information security and data protection policies, subject to annual review including cyber security review. Cyber security working group meets frequently and regularly |
|
- Inadequate business continuity planning (BCP) |
|
- Established BCP process with periodic updates to Group RCC |
|
- Inaccurate or invalid data including manual processes/reporting |
|
- Dedicated teams responsible for Transaction Processing, Fund Administration, and Pricing and Data Management - Pricing Oversight and Pricing Methodology and Valuation Committees, with PMVC valuations subject to external audit - Annual ISAE 3402 process and report |
|
- Failure of IT infrastructure, including inability to support business growth |
|
- Appropriate IT policies with annual review cycle - IT systems and environmental monitoring - Group IT platform incorporates local offices |
|
- Legal action, fraud or breach of contract perpetrated against the Group, its funds or investments |
|
- Independent Internal Audit function that considers risk of fraud in each audit - Financial crime policy covering the Group and its service providers - Whistleblowing policy including independent reporting line, and Board sponsor (the Senior Independent Director) - Due diligence on all new, and regular reviews of existing, service providers - Insurance policies with appropriate cover to ensure appropriate client litigation cover |
|
- Insufficient resources, including loss of key staff, inability to attract staff and health and safety issues, which hampers growth or the Group's ability to execute its strategy |
|
- Committee-based investment management reduces key man risk - Appropriate remuneration policy with emphasis on performance-related pay and long-dated deferral of equity awards - Regular reviews of resource requirements and updates provided to the Board |
|
- Lack of understanding and compliance with global and local regulatory requirements, as well as conflicts of interest and not treating customers fairly; and financial crime, which includes money laundering, bribery and corruption, leading to high level publicity or regulatory sanction |
|
- Regulatory Development Working Group and compliance monitoring programme, which covers financial crime risks such as money laundering and bribery - Compliance policies covering global and local offices, for example global conflicts of interest and inducements policies - Conduct risk and organisational culture indicators are considered on a monthly basis by the Group RCC and on an annual basis by the Board - Internal Capital Adequacy Assessment Process (ICAAP) with ongoing engagement with the Board - Mandatory compliance training for all employees |
|
- Inadequate tax oversight or advice |
|
- Dedicated in-house tax specialist and Group Tax policy covering all Group entities with external advice sought as appropriate |
|
- Inadequate oversight of Ashmore overseas offices |
|
- Group Finance Director has oversight responsibility for overseas offices, and RCC has oversight of the operating model with annual reviews. Senior staff take local Board/advisory positions - Local RCCs held and Group RCC receives updates - Internal Audit reviews, and annual governance reviews reported to RCC |
|
- Ineffective or mismanaged third-party services |
|
- Due diligence on all new third parties and periodic meetings with core service providers |
Consolidated statement of comprehensive income
For the year ended 30 June 2020
|
|
Notes |
2020 |
2019 |
|
Management fees |
|
330.0 |
307.6 |
|
Performance fees |
|
3.9 |
2.8 |
|
Other revenue |
|
4.1 |
5.9 |
|
Total revenue |
|
338.0 |
316.3 |
|
Distribution costs |
|
(14.5) |
(13.3) |
|
Foreign exchange |
7 |
7.0 |
11.3 |
|
Net revenue |
|
330.5 |
314.3 |
|
|
|
|
|
|
Gains/(losses) on investment securities |
20 |
(19.1) |
0.5 |
|
Change in third-party interests in consolidated funds |
20 |
7.5 |
3.8 |
|
Personnel expenses |
9 |
(82.6) |
(84.2) |
|
Other expenses |
11 |
(26.6) |
(31.6) |
|
Operating profit |
|
209.7 |
202.8 |
|
|
|
|
|
|
Finance income |
8 |
12.0 |
17.4 |
|
Share of losses from associates and joint ventures |
26 |
(0.2) |
(0.3) |
|
Profit before tax |
|
221.5 |
219.9 |
|
|
|
|
|
|
Tax expense |
12 |
(36.8) |
(38.4) |
|
Profit for the year |
|
184.7 |
181.5 |
|
|
|
|
|
|
Other comprehensive income, net of related tax effect |
|
|
|
|
Items that may be reclassified subsequently to profit or loss: |
|
|
|
|
Foreign currency translation differences arising on foreign operations |
|
12.8 |
14.7 |
|
Cash flow hedge intrinsic value losses |
|
(0.1) |
- |
|
Other comprehensive income, net of tax |
|
12.7 |
14.7 |
|
Total comprehensive income for the year |
|
197.4 |
196.2 |
|
|
|
|
|
|
Profit attributable to: |
|
|
|
|
Equity holders of the parent |
|
182.1 |
178.6 |
|
Non-controlling interests |
|
2.6 |
2.9 |
|
Profit for the year |
|
184.7 |
181.5 |
|
|
|
|
|
|
Total comprehensive income attributable to: |
|
|
|
|
Equity holders of the parent |
|
194.7 |
193.2 |
|
Non-controlling interests |
|
2.7 |
3.0 |
|
Total comprehensive income for the year |
|
197.4 |
196.2 |
|
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic |
13 |
27.35p |
26.57p |
|
Diluted |
13 |
25.68p |
25.04p |
Consolidated balance sheet
As at 30 June 2020
|
|
Notes |
2020 |
2019 |
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Goodwill and intangible assets |
15 |
89.7 |
87.3 |
|
Property, plant and equipment |
16 |
11.7 |
1.5 |
|
Investment in associates and joint ventures |
26 |
0.6 |
1.8 |
|
Non-current financial assets measured at fair value |
20 |
28.0 |
31.6 |
|
Deferred acquisition costs |
|
0.7 |
0.8 |
|
Deferred tax assets |
18 |
30.6 |
30.2 |
|
|
|
161.3 |
153.2 |
|
Current assets |
|
|
|
|
Investment securities |
20 |
234.5 |
278.7 |
|
Financial assets measured at fair value |
20 |
11.6 |
16.0 |
|
Trade and other receivables |
17 |
96.2 |
79.4 |
|
Cash and cash equivalents |
|
500.9 |
477.2 |
|
|
|
843.2 |
851.3 |
|
|
|
|
|
|
Non-current assets held for sale |
20 |
43.1 |
44.7 |
|
Total assets |
|
1,047.6 |
1,049.2 |
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
Capital and reserves - attributable to equity holders of the parent |
|
|
|
|
Issued capital |
22 |
0.1 |
0.1 |
|
Share premium |
|
15.6 |
15.6 |
|
Retained earnings |
|
813.2 |
812.6 |
|
Foreign exchange reserve |
|
27.6 |
14.9 |
|
Cash flow hedging reserve |
|
(0.1) |
- |
|
|
|
856.4 |
843.2 |
|
Non-controlling interests |
30 |
22.6 |
10.9 |
|
Total equity |
|
879.0 |
854.1 |
|
Liabilities |
|
|
|
|
Non-current liabilities |
|
|
|
|
Lease liabilities |
16 |
8.2 |
- |
|
Deferred tax liabilities |
18 |
6.9 |
8.4 |
|
|
|
15.1 |
8.4 |
|
Current liabilities |
|
|
|
|
Lease liabilities |
16 |
2.0 |
- |
|
Current tax |
|
8.5 |
22.5 |
|
Third-party interests in consolidated funds |
20 |
86.1 |
107.0 |
|
Derivative financial instruments |
21 |
1.7 |
1.1 |
|
Trade and other payables |
24 |
50.7 |
56.1 |
|
|
|
149.0 |
186.7 |
|
Non-current liabilities held for sale |
20 |
4.5 |
- |
|
Total liabilities |
|
168.6 |
195.1 |
|
Total equity and liabilities |
|
1,047.6 |
1,049.2 |
Approved by the Board on 10 September 2020 and signed on its behalf by:
Mark Coombs Tom Shippey
Chief Executive Officer Group Finance Director
Consolidated statement of changes in equity
For the year ended 30 June 2020
|
|
Attributable to equity holders of the parent |
|
|
|||||
|
|
Issued capital £m |
Share premium |
Retained earnings |
Foreign exchange reserve |
Cash flow hedging reserve |
Total |
Non-controlling interests |
Total |
|
Balance at 30 June 2018 |
0.1 |
15.6 |
743.2 |
0.3 |
- |
759.2 |
1.3 |
760.5 |
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
178.6 |
- |
- |
178.6 |
2.9 |
181.5 |
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
Foreign currency translation differences arising on foreign operations |
- |
- |
- |
14.6 |
- |
14.6 |
0.1 |
14.7 |
|
Total comprehensive income/(loss) |
- |
- |
178.6 |
14.6 |
- |
193.2 |
3.0 |
196.2 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
|
Purchase of own shares |
- |
- |
(23.7) |
- |
- |
(23.7) |
- |
(23.7) |
|
Acquisition of subsidiary with non-controlling interest |
- |
- |
5.2 |
- |
- |
5.2 |
9.0 |
14.2 |
|
Share-based payments |
- |
- |
27.6 |
- |
- |
27.6 |
- |
27.6 |
|
Dividends to equity holders |
- |
- |
(118.3) |
- |
- |
(118.3) |
- |
(118.3) |
|
Dividends to non-controlling interests |
- |
- |
- |
- |
- |
- |
(2.4) |
(2.4) |
|
Total contributions and distributions |
- |
- |
(109.2) |
- |
- |
(109.2) |
6.6 |
(102.6) |
|
Balance at 30 June 2019 |
0.1 |
15.6 |
812.6 |
14.9 |
- |
843.2 |
10.9 |
854.1 |
|
Adjustment on adoption of IFRS 16 (note 3) |
- |
- |
(0.2) |
- |
- |
(0.2) |
- |
(0.2) |
|
Adjusted balance at 1 July 2019 |
0.1 |
15.6 |
812.4 |
14.9 |
- |
843.0 |
10.9 |
853.9 |
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
182.1 |
- |
- |
182.1 |
2.6 |
184.7 |
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
Foreign currency translation differences arising on foreign operations |
- |
- |
- |
12.7 |
- |
12.7 |
0.1 |
12.8 |
|
Cash flow hedge intrinsic value losses |
- |
- |
- |
- |
(0.1) |
(0.1) |
- |
(0.1) |
|
Total comprehensive income/(loss) |
- |
- |
182.1 |
12.7 |
(0.1) |
194.7 |
2.7 |
197.4 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
|
Purchase of own shares |
- |
- |
(89.5) |
- |
- |
(89.5) |
- |
(89.5) |
|
Share-based payments |
- |
- |
28.6 |
- |
- |
28.6 |
- |
28.6 |
|
Issue of shares to non-controlling interests (note 30) |
- |
- |
(0.4) |
- |
- |
(0.4) |
11.7 |
11.3 |
|
Dividends to equity holders |
- |
- |
(120.0) |
- |
- |
(120.0) |
- |
(120.0) |
|
Dividends to non-controlling interests |
- |
- |
- |
- |
- |
- |
(2.7) |
(2.7) |
|
Total contributions and distributions |
- |
- |
(181.3) |
- |
- |
(181.3) |
9.0 |
(172.3) |
|
Balance at 30 June 2020 |
0.1 |
15.6 |
813.2 |
27.6 |
(0.1) |
856.4 |
22.6 |
879.0 |
Consolidated cash flow statement
For the year ended 30 June 2020
|
|
2020 |
2019 |
|
Operating activities |
|
|
|
Operating profit |
209.7 |
202.8 |
|
Adjustments for non-cash items: |
|
|
|
Depreciation and amortisation |
3.4 |
4.8 |
|
Accrual for variable compensation |
33.9 |
27.6 |
|
Unrealised foreign exchange gains |
(7.0) |
(11.3) |
|
Other non-cash items |
10.6 |
(4.3) |
|
Cash generated from operations before working capital changes |
250.6 |
219.6 |
|
Changes in working capital: |
|
|
|
Decrease/(increase) in trade and other receivables |
9.1 |
(8.2) |
|
Increase in derivative financial instruments |
0.6 |
1.0 |
|
Decrease in trade and other payables |
(5.4) |
(1.2) |
|
Cash generated from operations |
254.9 |
211.2 |
|
Taxes paid |
(52.1) |
(22.1) |
|
Net cash generated from operating activities |
202.8 |
189.1 |
|
|
|
|
|
Investing activities |
|
|
|
Interest and investment income received |
14.7 |
15.4 |
|
Proceeds on disposal of associates |
0.6 |
- |
|
Acquisition of subsidiary, net of cash acquired |
- |
(4.9) |
|
Purchase of non-current financial assets measured at fair value |
(3.6) |
(4.8) |
|
Purchase of financial assets held for sale |
(43.6) |
(64.0) |
|
Purchase of financial assets measured at fair value |
- |
(0.3) |
|
(Purchase)/sale of investment securities |
(9.1) |
4.7 |
|
Sale of non-current financial assets measured at fair value |
2.5 |
24.0 |
|
Sale of financial assets held for sale |
8.4 |
19.4 |
|
Sale of financial assets measured at fair value |
25.1 |
4.4 |
|
Net cash on initial consolidation of seed capital investments |
(0.4) |
3.5 |
|
Purchase of property, plant and equipment |
(1.0) |
(0.8) |
|
Net cash used in investing activities |
(6.4) |
(3.4) |
|
|
|
|
|
Financing activities |
|
|
|
Dividends paid to equity holders |
(120.0) |
(118.3) |
|
Dividends paid to non-controlling interests |
(2.7) |
(2.4) |
|
Third-party subscriptions into consolidated funds |
50.0 |
2.7 |
|
Third-party redemptions from consolidated funds |
(29.6) |
(10.3) |
|
Distributions paid by consolidated funds |
(1.9) |
(1.5) |
|
Proceeds on issue of shares to non-controlling interests (note 30) |
11.3 |
- |
|
Payment of lease liabilities (note 16) |
(2.3) |
- |
|
Interest paid (note 16) |
(0.5) |
- |
|
Purchase of own shares |
(89.5) |
(23.7) |
|
Net cash used in financing activities |
(185.2) |
(153.5) |
|
|
|
|
|
Net increase in cash and cash equivalents |
11.2 |
32.2 |
|
|
|
|
|
Cash and cash equivalents at beginning of year |
477.2 |
433.0 |
|
Effect of exchange rate changes on cash and cash equivalents |
12.5 |
12.0 |
|
Cash and cash equivalents at end of year |
500.9 |
477.2 |
|
|
|
|
|
Cash and cash equivalents at end of year comprise: |
|
|
|
Cash at bank and in hand |
68.5 |
73.9 |
|
Daily dealing liquidity funds |
368.0 |
243.3 |
|
Deposits |
64.4 |
160.0 |
|
|
500.9 |
477.2 |
Company balance sheet
As at 30 June 2020
|
|
Notes |
2020 |
2019 |
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Goodwill |
15 |
4.1 |
4.1 |
|
Property, plant and equipment |
16 |
6.8 |
0.5 |
|
Investment in subsidiaries |
25 |
19.9 |
19.9 |
|
Deferred acquisition costs |
|
0.7 |
0.8 |
|
Deferred tax assets |
18 |
20.6 |
16.6 |
|
|
|
52.1 |
41.9 |
|
Current assets |
|
|
|
|
Trade and other receivables |
17 |
518.2 |
495.0 |
|
Cash and cash equivalents |
|
91.8 |
150.3 |
|
|
|
610.0 |
645.3 |
|
Total assets |
|
662.1 |
687.2 |
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
Capital and reserves |
|
|
|
|
Issued capital |
22 |
0.1 |
0.1 |
|
Share premium |
|
15.6 |
15.6 |
|
Retained earnings |
|
583.5 |
632.6 |
|
Cash flow hedging reserve |
|
(0.1) |
- |
|
Total equity attributable to equity holders of the Company |
|
599.1 |
648.3 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Non-current liabilities |
|
|
|
|
Lease liability |
16 |
4.8 |
- |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Lease liability |
16 |
1.1 |
- |
|
Derivative financial instruments |
|
1.7 |
0.7 |
|
Trade and other payables |
24 |
55.4 |
38.2 |
|
|
|
63.0 |
38.9 |
|
Total equity and liabilities |
|
662.1 |
687.2 |
Approved by the Board on 10 September 2020 and signed on its behalf by:
Mark Coombs Tom Shippey
Chief Executive Officer Group Finance Director
Company statement of changes in equity
For the year ended 30 June 2020
|
|
Issued |
Share |
Retained earnings |
Cash flow hedging |
Total equity attributable to equity holders of the parent £m |
|
Balance at 30 June 2018 |
0.1 |
15.6 |
573.8 |
- |
589.5 |
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
178.4 |
- |
178.4 |
|
Purchase of own shares |
- |
- |
(23.7) |
- |
(23.7) |
|
Acquisition of subsidiary |
- |
- |
5.2 |
- |
5.2 |
|
Share-based payments |
- |
- |
17.2 |
- |
17.2 |
|
Dividends to equity holders |
- |
- |
(118.3) |
- |
(118.3) |
|
Balance at 30 June 2019 |
0.1 |
15.6 |
632.6 |
- |
648.3 |
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
120.7 |
- |
120.7 |
|
Cash flow hedge intrinsic value losses |
- |
- |
- |
(0.1) |
(0.1) |
|
Purchase of own shares |
- |
- |
(89.5) |
- |
(89.5) |
|
Share-based payments |
- |
- |
39.7 |
- |
39.7 |
|
Dividends to equity holders |
- |
- |
(120.0) |
- |
(120.0) |
|
Balance at 30 June 2020 |
0.1 |
15.6 |
583.5 |
(0.1) |
599.1 |
Company cash flow statement
For the year ended 30 June 2020
|
|
2020 |
2019 |
|
Operating activities |
|
|
|
Operating profit |
116.9 |
178.4 |
|
Adjustments for: |
|
|
|
Depreciation and amortisation |
1.5 |
0.3 |
|
Accrual for variable compensation |
21.7 |
17.2 |
|
Unrealised foreign exchange gains |
(13.9) |
(15.5) |
|
Dividends received from subsidiaries |
(122.0) |
(174.4) |
|
Cash generated from operations before working capital changes |
4.2 |
6.0 |
|
Changes in working capital: |
|
|
|
Decrease/(increase) in trade and other receivables |
22.4 |
(9.7) |
|
Increase in derivative financial instruments |
1.0 |
0.7 |
|
Increase/(decrease) in trade and other payables |
17.2 |
(37.8) |
|
Cash generated from/(used in) operations |
44.8 |
(40.8) |
|
Taxes paid |
(38.4) |
(12.5) |
|
Net cash generated from/(used in) operating activities |
6.4 |
(53.3) |
|
|
|
|
|
Investing activities |
|
|
|
Interest received |
1.4 |
0.7 |
|
Acquisition of subsidiary |
- |
(5.2) |
|
Loans advanced to subsidiaries |
(111.8) |
(66.8) |
|
Loans repaid by subsidiaries |
135.1 |
80.1 |
|
Dividends received from subsidiaries |
122.0 |
174.4 |
|
Purchase of property, plant and equipment |
(0.9) |
(0.3) |
|
Net cash generated from investing activities |
145.8 |
182.9 |
|
|
|
|
|
Financing activities |
|
|
|
Dividends paid |
(120.0) |
(118.3) |
|
Payment of lease liability |
(1.0) |
- |
|
Interest paid |
(0.3) |
- |
|
Purchase of own shares |
(89.5) |
(23.7) |
|
Net cash used in financing activities |
(210.8) |
(142.0) |
|
|
|
|
|
Net decrease in cash and cash equivalents |
(58.6) |
(12.4) |
|
|
|
|
|
Cash and cash equivalents at beginning of year |
150.3 |
159.2 |
|
Effect of exchange rate changes on cash and cash equivalents |
0.1 |
3.5 |
|
Cash and cash equivalents at end of year |
91.8 |
150.3 |
|
|
|
|
|
Cash and cash equivalents at end of year comprise: |
|
|
|
Cash at bank and in hand |
16.9 |
19.6 |
|
Daily dealing liquidity funds |
31.9 |
10.7 |
|
Deposits |
43.0 |
120.0 |
|
|
91.8 |
150.3 |
Notes to the financial statements
1) General information
Ashmore Group plc (the Company) is a public limited company listed on the London Stock Exchange and incorporated and domiciled in the United Kingdom. The consolidated financial statements of the Company and its subsidiaries (together the Group) for the year ended 30 June 2020 were authorised for issue by the Board of Directors on 10 September 2020.
2) Basis of preparation
The Group and Company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) effective for the Group's reporting for the year ended 30 June 2020 and applied in accordance with the provisions of the Companies Act 2006.
The financial statements have been prepared on a going concern basis under the historical cost convention, except for the measurement at fair value of derivative financial instruments and financial assets and liabilities that are held at fair value through profit or loss.
The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 that allows it not to present its individual statement of comprehensive income and related notes.
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Further information about key assumptions and other key sources of estimation and areas of judgement are set out in note 31.
Going concern
The Board of Directors has considered the resilience of the Group, taking into account its current financial position, and the principal and emerging risks facing the business including the impact of COVID-19 on global markets and potential implications for the Group's financial performance. The Board reviewed cash flow forecasts for a period of 12 months from the date of approval of these financial statements which indicate that, taking account of downsides which could reasonably be anticipated, the Group will have sufficient funds to meet its liabilities as they fall due for that period. The Board considered the impact of COVID-19 by applying stressed scenarios, including severe but plausible downside assumptions, and the impact on assets under management, profitability of the Group and known commitments. While there are significant wider market uncertainties that may impact the Group, the stressed scenarios, which assumed a significant reduction in revenue for the entire forecast period, show that the Group and Company would continue to operate profitably and meet their liabilities as they fall due for a period of at least 12 months from the date of approval of the annual financial statements. The financial statements have therefore been prepared on a going concern basis.
3) New Standards and Interpretations adopted by the Group
The Group has applied IFRS 16 Leases (IFRS 16) and IFRIC 23 Uncertainty over Income Tax Treatments from 1 July 2019. The nature and effect of the adoption of these standards are disclosed below.
IFRS 16 Leases
The Group has applied IFRS 16 for the first time for its annual reporting period commencing on 1 July 2019. IFRS 16 replaces IAS 17 Leases and became effective for reporting periods beginning on or after 1 January 2019. On adoption of IFRS 16, the Group has measured the right-of-use (ROU) assets as if the standard had always been applied but based on an incremental borrowing rate at 1 July 2019. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate as at 1 July 2019.
Comparative information has not been restated as the Group has applied IFRS 16 using the modified retrospective approach with the cumulative effect of initially applying the standard recognised as an adjustment to the opening retained earnings at 1 July 2019.
The Group has applied the optional exemption contained within IFRS 16, which permits the cost of short-term (less than 12 months) leases to be expensed on a straight-line basis over the lease term. These lease arrangements are not material to the Group.
At 30 June 2019, the Group had non-cancellable operating lease commitments of £13.8 million. As a result of applying IFRS 16, the Group has recognised a lease liability and ROU asset at 1 July 2019 of £12.8 million and £12.6 million respectively. This reduced the Group's net assets by £0.2 million, recognised as a reduction in retained earnings at 1 July 2019. The weighted average lessee's incremental borrowing rate applied to measure the lease liabilities on 1 July 2019 was 4.8%.
The Group's accounting policies in respect of IFRS 16 are set out in note 4 and additional disclosure on the Group's recognised ROU assets and lease liabilities is provided in note 16.
IFRIC 23 Uncertainty over Income Tax Treatments
IFRIC 23 became effective on 1 January 2019 and provides clarification as to how the recognition and measurement requirements of IAS 12 Income Tax should be applied. IFRIC 23 does not have a material impact on the Group.
New Standards and Interpretations not yet adopted
There were no other Standards or Interpretations that were in issue and required to be adopted by the Group as at the date of authorisation of these consolidated financial statements. No other Standards or Interpretations have been issued that are expected to have a material impact on the Group's financial statements.
4) Significant accounting policies
The following principal accounting policies have been applied consistently where applicable to all years presented in dealing with items considered material in relation to the Group and Company financial statements, unless otherwise stated.
Basis of consolidation
The consolidated financial statements of the Group comprise the financial statements of the Company and its subsidiaries, associates and joint ventures. This includes an Employee Benefit Trust (EBT) established for the employee share-based awards and consolidated investment funds.
Interests in subsidiaries
Subsidiaries are entities, including investment funds, over which the Group has control as defined by IFRS 10. The Group has control if it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date when control ceases. The Group reassesses whether or not it controls an entity if facts and circumstances indicate that there are changes to one or more of the elements of control.
The profit or loss and each component of other comprehensive income are attributed to the equity holders of the Company and to any non-controlling interests. Based on their nature, the interests of third parties in consolidated funds are classified as liabilities and appear as 'Third-party interests in consolidated funds' on the Group's balance sheet. Associates and joint ventures are presented as single-line items in the statement of comprehensive income and balance sheet (refer to note 26). Intercompany transactions and balances are eliminated on consolidation. Consistent accounting policies have been applied across the Group in the preparation of the consolidated financial statements as at 30 June 2020.
A change in the ownership interest of a consolidated entity that does not result in a loss of control by the Group is accounted for as an equity transaction. If the Group loses control over a consolidated entity, it derecognises the related assets, goodwill, liabilities, non-controlling interest and other components of equity, and any gain or loss is recognised in consolidated comprehensive income. Any investment retained is recognised at its fair value at the date of loss of control.
Interests in associates and joint arrangements
Associates are partly owned entities over which the Group has significant influence but no control. Joint ventures are entities through which the Group and other parties undertake an economic activity which is subject to joint control.
Investments in associates and interests in joint ventures are measured using the equity method of accounting. Under this method, the investments are initially recognised at cost, including attributable goodwill, and are adjusted thereafter for the post-acquisition changes in the Group's share of net assets. The Group's share of post-acquisition profit or loss is recognised in the statement of comprehensive income.
Where the Group's financial year is not coterminous with those of its associates or joint ventures, unaudited interim financial information is used after appropriate adjustments have been made.
Interests in consolidated structured entities
The Group acts as fund manager to investment funds that are considered to be structured entities. Structured entities are entities that have been designed so that voting or similar rights are not the dominant factor in deciding which party has control: for example, when any voting rights relate to administrative tasks only and the relevant activities of the entity are directed by means of contractual arrangements. The Group's assets under management are managed within structured entities. These structured entities typically consist of unitised vehicles such as Société d'Investissement à Capital Variable (SICAVs), limited partnerships, unit trusts and open-ended and closed-ended vehicles which entitle third-party investors to a percentage of the vehicle's net asset value.
The Group has interests in structured entities as a result of the management of assets on behalf of its clients. Where the Group holds a direct interest in a closed-ended fund, private equity fund or open-ended pooled fund such as a SICAV, the interest is accounted for either as a consolidated structured entity or as a financial asset, depending on whether the Group has control over the fund or not. Control is determined in accordance with IFRS 10, based on an assessment of the level of power and aggregate economic interest that the Group has over the fund, relative to third-party investors. Power is normally conveyed to the Group through the existence of an investment management agreement and/or other contractual arrangements. Aggregate economic interest is a measure of the Group's exposure to variable returns in the fund through a combination of direct interest, expected share of performance fees, expected management fees, fair value gains or losses, and distributions receivable from the fund.
The Group concludes that it acts as a principal when the power it has over the fund is deemed to be exercised for self-benefit, considering the level of aggregate economic exposure in the fund and the assessed strength of third-party investors' kick-out rights. The Group concludes that it acts as an agent when the power it has over the fund is deemed to be exercised for the benefit of third-party investors.
The Group concludes that it has control and, therefore, will consolidate a fund as if it were a subsidiary where the Group acts as a principal. If the Group concludes that it does not have control over the fund, the Group accounts for its interest in the fund as a financial asset.
Interests in unconsolidated structured entities
The Group classifies the following investment funds as unconsolidated structured entities:
- Segregated mandates and pooled funds managed where the Group does not hold any direct interest. In this case, the Group considers that its aggregate economic exposure is insignificant and, in relation to segregated mandates, the third-party investor has the practical ability to remove the Group from acting as fund manager, without cause. As a result, the Group concludes that it acts as an agent for third-party investors.
- Pooled funds managed by the Group where the Group holds a direct interest, for example seed capital investments, and the Group's aggregate economic exposure in the fund relative to third-party investors is less than 20% (i.e. the threshold established by the Group for determining agent versus principal classification). As a result, the Group concludes that it is an agent for third-party investors and, therefore, will account for its beneficial interest in the fund as a financial asset.
The disclosure of the AuM in respect of consolidated and unconsolidated structured entities is provided in note 27.
Foreign currency
The Group's financial statements are presented in Pounds Sterling (Sterling), which is also the Company's functional and presentation currency. Items included in the financial statements of each of the Group's entities are measured using the functional currency, which is the currency that prevails in the primary economic environment in which the entity operates.
Foreign currency transactions
Transactions in foreign currencies are translated into the respective functional currencies of the Group entities at the spot exchange rates at the date of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into the functional currency at the spot exchange rate at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Foreign currency differences arising on translation are generally recognised in comprehensive income, except for qualifying cash flow hedges to the extent that the hedge is effective, in which case foreign currency differences arising are recognised in other comprehensive income.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into Sterling at the spot exchange rates at the balance sheet date. The revenues and expenses of foreign operations are translated into Sterling at rates approximating to the foreign exchange rates ruling at the dates of the transactions.
Foreign currency differences are recognised in other comprehensive income, and accumulated in the foreign currency translation reserve, except to the extent that the translation difference is allocated to non-controlling interests.
When a foreign operation is disposed of such that control is lost, the cumulative amount in the foreign currency translation reserve related to that foreign operation is reclassified to comprehensive income as part of the gain or loss on disposal. If the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests.
If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign currency differences arising on the item form part of the net investment in the foreign operation and are recognised in other comprehensive income, and accumulated in the foreign currency translation reserve within equity.
Business combinations
Business combinations are accounted for using the acquisition method as at the acquisition date. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree.
The consideration transferred for the acquisition is generally measured at the acquisition date fair value, as are the identifiable net assets acquired, liabilities incurred (including any asset or liability resulting from a contingent consideration arrangement) and equity instruments issued by the Group in exchange for control of the acquiree.
Acquisition-related costs are expensed as incurred, except if they are related to the issue of debt or equity securities.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. If the contingent consideration is classified as equity, it will not be remeasured and settlement is accounted for within equity.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss.
Goodwill
The cost of a business combination in excess of the fair value of net identifiable assets or liabilities acquired, including intangible assets identified, is recognised as goodwill and stated at cost less any accumulated impairment losses. Goodwill has an indefinite useful life, is not subject to amortisation and is tested annually for impairment or when there is an indication of impairment.
Intangible assets
The cost of intangible assets, such as management contracts and brand names, acquired as part of a business combination
is their fair value as at the date of acquisition. The fair value at the date of acquisition is calculated using the discounted cash flow methodology and represents the valuation of the profits expected to be earned from the management contracts and brand name in place at the date of acquisition.
Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and impairment losses. Intangible assets with finite life are amortised on a systematic basis over their useful lives. The useful life of an intangible asset which has arisen from contractual or other legal rights does not exceed the period of the contractual or other legal rights.
Non-controlling interests (NCI)
The Group recognises NCI in an acquired entity either at fair value or at the NCI's proportionate share of the acquired entity's net identifiable assets. This decision is made on an acquisition-by-acquisition basis. Changes to the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost is determined on the basis of the direct and indirect costs that are directly attributable. Property, plant and equipment are depreciated using the straight-line method over the estimated useful lives, assessed to be five years for office equipment and four years for IT equipment. The residual values and useful lives of assets are reviewed at least annually.
Deferred acquisition costs
Costs that are directly attributable to securing an investment management contract are deferred if they can be identified separately and measured reliably and it is probable that they will be recovered. Deferred acquisition costs represent the incremental costs incurred by the Group to acquire an investment management contract, typically on a closed-ended fund. The Group amortises the deferred acquisition asset recognised on a systematic basis, in line with the revenue generated from providing the investment management services over the life of the fund.
Financial instruments
Recognition and initial measurement
Financial instruments are recognised when the Group becomes party to the contractual provisions of an instrument, initially at fair value plus transaction costs except for financial assets classified at fair value through profit or loss. Purchases or sales of financial assets are recognised on the trade date, being the date that the Group commits to purchase or sell the asset.
Financial assets are derecognised when the rights to receive cash flows from the investments have expired or been transferred or when the Group has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when the obligation under the liability has been discharged, cancelled or expires.
Subsequent measurement
The subsequent measurement of financial instruments depends on their classification in accordance with IFRS 9 Financial Instruments and IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Under IFRS 9, the Group classifies its financial assets into two measurement categories: amortised cost and FVTPL. The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
- it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
All financial assets not classified as measured at amortised cost are measured at FVTPL. The Group classifies its financial liabilities at amortised cost or derivative liabilities measured at FVTPL.
Amortised cost is the amount determined based on moving the initial amount recognised for the financial instrument to the maturity value on a systematic basis using a fixed interest rate (effective interest rate), taking account of repayment dates and initial premiums or discounts.
Financial assets
The Group classifies its financial assets into the following categories: investment securities at FVTPL, non-current financial assets held for sale, financial assets at FVTPL and financial assets measured at amortised cost.
The Group may, from time to time, invest seed capital in funds where a subsidiary is the investment manager or an adviser. Where the holding in such investments is deemed to represent a controlling stake and is acquired exclusively with a view to subsequent disposal through sale or dilution, these seed capital investments are recognised as non-current financial assets held for sale in accordance with IFRS 5. The Group recognises 100% of the investment in the fund as a 'held for sale' asset and the interest held by other parties as a 'liability held for sale'. Where control is not deemed to exist, and the assets are readily realisable, they are recognised as financial assets measured at FVTPL in accordance with IFRS 9. Where the assets are not readily realisable, they are recognised as non-current financial assets measured at FVTPL. If a seed capital investment remains under the control of the Group for more than one year from the original investment date, the underlying fund is consolidated line by line.
Investment securities at FVTPL
Investment securities represent securities, other than derivatives, held by consolidated funds. These securities are measured at fair value with gains and losses recognised through the consolidated statement of comprehensive income.
Non-current financial assets held for sale (HFS)
Non-current financial assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell except where measurement and remeasurement is outside the scope of IFRS 5. Where investments that have initially been recognised as non-current financial assets held for sale, because the Group has been deemed to hold a controlling stake, are subsequently disposed of or diluted such that the Group's holding is no longer deemed a controlling stake, the investment will subsequently be classified as financial assets measured at FVTPL in accordance with IFRS 9. Subsequent movements will be recognised in accordance with the Group's accounting policy for the newly adopted classification.
Financial assets at FVTPL
Financial assets at FVTPL include certain readily realisable interests in seeded funds, non-current financial assets measured at fair value and derivatives. From the date the financial asset is recognised, all subsequent changes in fair value, foreign exchange differences, interest and dividends are reflected in the consolidated statement of comprehensive income and presented in finance income or expense.
(i) Non-current financial assets measured at fair value
Non-current financial assets include closed-end funds that are measured at FVTPL. They are held at fair value with changes in fair value being recognised through the consolidated statement of comprehensive income.
(ii) Financial assets measured at fair value
The Group classifies readily realisable interests in newly seeded funds as financial assets measured at FVTPL with fair value changes being directly recognised through the consolidated statement of comprehensive income. Fair value is measured based on the proportionate net asset value in the fund.
(iii) Derivatives
Derivatives include foreign exchange forward contracts and options used by the Group to manage its foreign currency exposures and those held in consolidated funds. Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and subsequently remeasured at fair value. Transaction costs are recognised immediately in the statement of comprehensive income. All derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in the fair value of derivatives are taken directly in comprehensive income, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income.
Financial assets measured at amortised cost
(i) Trade and other receivables
Trade and other receivables are initially recorded at fair value plus transaction costs. The fair value on acquisition is normally the cost. Impairment losses with respect to the estimated irrecoverable amount are recognised through the statement of comprehensive income when there is appropriate evidence that trade and other receivables are impaired. Subsequent to initial recognition these assets are measured at amortised cost less any impairment losses.
(ii) Cash and cash equivalents
Cash represents cash at bank and in hand, and cash equivalents comprise short-term deposits and investments in money market instruments that are redeemable on demand or with an original maturity of three months or less. The carrying amount of these assets approximates to their fair value.
Financial liabilities
The Group classifies its financial liabilities into the following categories: non-current financial liabilities held for sale, financial liabilities at FVTPL and financial liabilities at amortised cost.
Non-current financial liabilities held for sale
Non-current financial liabilities represent interests held by other parties in funds in which the Group recognises 100% of the investment in the fund as a held for sale financial asset. These liabilities are carried at fair value with gains or losses recognised in the statement of comprehensive income within finance income or expense.
Financial liabilities at FVTPL
Financial liabilities at FVTPL include derivative financial instruments and third-party interests in consolidated funds. They are carried at fair value with gains or losses recognised in the consolidated statement of comprehensive income within finance income or expense.
Financial liabilities at amortised cost
Other financial liabilities including trade and other payables are subsequently measured at amortised cost using the effective interest rate method. Interest expense is recognised as it is incurred using the effective interest method, which allocates interest at a constant rate of return over the expected life of the financial instrument based on the estimated future cash flows.
Fair value of financial instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the 'exit price') in an orderly transaction between market participants at the measurement date. In determining fair value, the Group uses various valuation approaches and establishes a hierarchy for inputs used in measuring fair value that maximises the use of relevant observable inputs and minimises the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Group.
Unobservable inputs are inputs that reflect the Group's judgements about the assumptions other market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.
Securities listed on a recognised stock exchange, or dealt on any other regulated market that operates regularly, is recognised and open to the public, are valued at the last known available closing bid price. If a security is traded on several actively traded and organised financial markets, the valuation is made on the basis of the last known bid price on the main market on which the securities are traded. In the case of securities for which trading on an actively traded and organised financial market is not significant, but which are bought and sold on a secondary market with regulated trading among security dealers (with the effect that the price is set on a market basis), the valuation may be based on this secondary market.
Where instruments are not listed on any stock exchange or not traded on any regulated markets, valuation techniques are used by valuation specialists. These techniques include the market approach, the income approach or the cost approach. The use of the market approach generally consists of using comparable market transactions or using techniques based on market observable inputs, while the use of the income approach generally consists of the net present value of estimated future cash flows, adjusted as deemed appropriate for liquidity, credit, market and/or other risk factors.
Investments in funds are valued on the basis of the last available net asset value of the units or shares of such funds.
The fair value of the derivatives is their quoted market price at the balance sheet date.
Hedge accounting
The Group applies the general hedge accounting model in IFRS 9. This requires the Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness.
The Group uses forward and option contracts to hedge the variability in cash flows arising from changes in foreign exchange rates relating to management fee revenues. The Group designates only the change in fair value of the spot element of the forward and option contracts in cash flow hedging relationships. The effective portion of changes in fair value of hedging instruments is accumulated in a cash flow hedge reserve as a separate component of equity.
The Group applies cash flow hedge accounting when the transaction meets the specified hedge accounting criteria. To qualify, the following conditions must be met:
- formal documentation of the relationship between the hedging instrument(s) and hedged item(s) must exist at inception;
- the hedged cash flows must be highly probable and must present an exposure to variations in cash flows that could ultimately affect comprehensive income;
- the effectiveness of the hedge can be reliably measured; and
- the hedge must be highly effective, with effectiveness assessed on an ongoing basis.
For qualifying cash flow hedges, the change in fair value of the effective hedging instrument is initially recognised in other comprehensive income and is released to comprehensive income in the same period during which the relevant financial asset or liability affects the Group's results.
Where the hedge is highly effective overall, any ineffective portion of the hedge is immediately recognised in comprehensive income. Where the instrument ceases to be highly effective as a hedge, or is sold, terminated or exercised, hedge accounting is discontinued.
Derecognition of financial assets and liabilities
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risk and rewards of ownership of the asset. The Group derecognises a financial liability when the Group's obligations are discharged, cancelled or they expire.
Impairment of financial assets
Under IFRS 9, impairment losses on the Group's financial assets at amortised cost are measured using an expected credit loss (ECL) model. Under this model, the Group is required to account for expected credit losses, and changes in those expected credit losses over the life of the instrument. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition and, consequently, more timely information is provided about expected credit losses. A three stage model is used for calculating expected credit losses, which requires financial assets to be assessed as:
- Performing (stage 1) financial assets where there has been no significant increase in credit risk since original recognition; or
- Under-performing (stage 2) financial assets where there has been a significant increase in credit risk since initial recognition, but no default event; or
- Non-performing (stage 3) financial assets that are in default.
Expected credit losses for stage 1 financial assets are calculated based on possible default events within the 12 months after the reporting date. Expected credit losses for stage 2 and 3 financial assets are calculated based on lifetime expected credit losses that result from all possible default events over the expected life of a financial instrument. The Group applies the simplified approach to calculate expected credit losses for financial assets measured at amortised cost. Under this approach, financial assets are not categorised into three stages and expected credit losses are calculated based on the life of the instrument.
Assets measured at amortised cost
The Group measures loss allowances at an amount equal to lifetime expected credit losses. Expected credit loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. The Group's financial assets subject to impairment assessment under the ECL model comprise cash deposits held with banks and trade receivables. In assessing the impairment of financial assets under the ECL model, the Group assesses whether the risk of default has increased significantly since initial recognition, by considering both quantitative and qualitative information, and the analysis is based on the Group's historical experience of credit default, including forward-looking information.
The Group's trade receivables comprise balances due from management fees, performance fees, expense recoveries from funds managed, and are generally short term and do not contain financing components. Factors considered in determining whether a default has taken place include how many days past the due date a payment is, deterioration in the credit quality of a counterparty, and knowledge of specific events that could influence a counterparty's ability to pay. The Group assesses lifetime expected credit losses based on historical observed default rates, adjusted by forward-looking estimates regarding the economic conditions within the next year. Externally derived credit ratings have been identified as representing the best available determinant of counterparty credit risk for cash balances and credit risk is deemed to have increased significantly if the credit rating has significantly deteriorated at the reporting date relative to the credit rating at the date of initial recognition.
Impairment of non-financial assets
For all other assets other than goodwill, an impairment test is performed annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets, other than goodwill, that have suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
Goodwill
Goodwill is tested for impairment annually or whenever there is an indication that the carrying amount may not be recoverable based on management's judgements regarding the future prospects of the business, estimates of future cash flows and discount rates. When assessing the appropriateness of the carrying value of goodwill at year end, the recoverable amount is considered to be the greater of fair value less costs to sell or value in use. The pre-tax discount rate applied is based on the Group's weighted average cost of capital after making allowances for any specific risks.
The business of the Group is managed as a single unit, with asset allocations, research and other such operational practices reflecting the commonality of approach across all fund themes. Therefore, for the purpose of testing goodwill for impairment, the Group is considered to have one cash-generating unit to which all goodwill is allocated and, as a result, no further split of goodwill into smaller cash-generating units is possible and the impairment review is conducted for the Group as a whole.
An impairment loss in respect of goodwill cannot be reversed.
Net revenue
Net revenue is total revenue less distribution costs and including foreign exchange. The Group's total revenue includes management fees, performance fees and other revenue. The primary revenue source for the Group is fee income received or receivable for the provision of investment management services.
The Group recognises revenue in accordance with the principles of IFRS 15 Revenue from Contracts with Customers.
The core principle of IFRS 15 is that revenue is recognised to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Group applies the IFRS 15 five-step model for recognising revenue, which consists of identifying the contract with the customer; identifying the relevant performance obligations; determining the amount of consideration to be received under the contract; allocating the consideration to each performance obligation; and earning the revenue as the performance obligations are satisfied.
The Group's principal revenue recognition policies are summarised below:
Management fees
Management fees are presented net of rebates, and are calculated as a percentage of net fund assets managed in accordance with individual management agreements. Management fees are calculated and recognised on a monthly basis in accordance with the terms of the management fee agreements. Management fees are typically collected on monthly or quarterly basis.
Performance fees
Performance fees are presented net of rebates, and are calculated as a percentage of the appreciation in the net asset value of a fund above a defined hurdle. Performance fees are earned from some arrangements when contractually agreed performance levels are exceeded within specified performance measurement periods, typically over one year. The fees are recognised when they can be reliably estimated and/or crystallised, and there is deemed to be a low probability of a significant reversal in future periods. This is usually at the end of the performance period or upon early redemption by a fund investor. Once crystallised, performance fees typically cannot be clawed-back.
Rebates
Rebates relate to repayments of management and performance fees charged subject to a rebate agreement, typically with institutional investors, and are calculated based on an agreed percentage of net fund assets managed and recognised as the service is received. Where rebate agreements exist, management and performance fees are presented on a net basis in the consolidated statement of comprehensive income.
Other revenue
Other revenue principally comprises fees for other services, which are typically driven by the volume of transactions, along with revenues that vary in accordance with the volume of fund project development activities. Other revenue includes transaction, structuring and administration fees, project management fees, and reimbursement by funds of costs incurred by the Group. This revenue is recognised as the relevant service is provided and it is probable that the fee will be collected.
Distribution costs
Distribution costs are costs of sales payable to external intermediaries for marketing and investor servicing. Distribution costs vary based on fund assets managed and the associated management fee revenue, and are expensed over the period in which the service is provided.
Employee benefits
Obligations for contributions to defined contribution pension plans are recognised as an expense in the statement of comprehensive income when payable in accordance with the scheme particulars.
Share-based payments
The Group issues share awards to its employees under share-based compensation plans.
For equity-settled awards, the fair value of the amounts payable to employees is recognised as an expense with a corresponding increase in equity over the vesting period after adjusting for the estimated number of shares that are expected to vest. The fair value is measured at the grant date using an appropriate valuation model, taking into account the terms and conditions upon which the instruments were granted. At each balance sheet date prior to vesting, the cumulative expense representing the extent to which the vesting period has expired and management's best estimate of the awards that are ultimately expected to vest is calculated. The movement in cumulative expense is recognised in the statement of comprehensive income with a corresponding entry within equity.
For cash-settled awards, the fair value of the amounts payable to employees is recognised as an expense with a corresponding liability on the Group's balance sheet. The fair value is measured using an appropriate valuation model, taking into account the estimated number of awards that are expected to vest and the terms and conditions upon which the instruments were granted. During the vesting period, the liability recognised represents the portion of the vesting period that has expired at the balance sheet date multiplied by the fair value of the awards at that date. Movements in the liability are recognised in the statement of comprehensive income.
Leases
The Group's lease arrangements primarily consist of operating leases relating to office space.
IFRS 16 replaced IAS 17 Leases on 1 January 2019. Until 30 June 2019, in accordance with IAS 17, obligations under lease agreements were not recorded on the Group's consolidated statement of financial position but were disclosed as lease commitments. The Group has not restated comparative information.
The Group initially records a lease liability reflecting the present value of the future contractual cash flows to be made over the lease term, discounted using the rate implicit in the lease, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the ROU asset in a similar economic environment with similar terms, security and conditions. Where this rate is not readily available, the Group applies the incremental borrowing rate applicable for each lease arrangement. A ROU asset is also recorded at the value of the lease liability plus any directly related costs and estimated dilapidation expenses and is presented within property, plant and equipment (see note 16). Interest is accrued on the lease liability using the effective interest rate method to give a constant rate of return over the life of the lease whilst the balance is reduced as lease payments are made. The ROU asset is depreciated over the life of the lease as the benefit of the lease is consumed.
After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects the likelihood that it will exercise (or not exercise) a term extension option.
The cost of short-term (less than 12 months) leases is expensed on a straight-line basis over the lease term.
Finance income and expense
Finance income includes interest receivable on the Group's cash and cash equivalents, and both realised and unrealised gains on financial assets at FVTPL.
Finance expense includes both realised and unrealised losses on financial assets at FVTPL. Interest expense on lease liabilities is presented within finance expense.
Taxation
Tax expense for the year comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year, and any adjustment to the tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the balance sheet date in the countries where the Group operates. Current tax also includes withholding tax arising from dividends.
Deferred tax
Deferred tax is recognised using the balance sheet liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following differences are not provided for:
- goodwill not deductible for tax purposes and
- differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the balance sheet date.
Dividends
Dividends are recognised when shareholders' rights to receive payments have been established.
Equity shares
The Company's ordinary shares of 0.01 pence each are classified as equity instruments. Ordinary shares issued by the Company are recorded at the fair value of the consideration received or the market price at the day of issue. Direct issue costs, net of tax, are deducted from equity through share premium. When share capital is repurchased, the amount of consideration paid, including directly attributable costs, is recognised as a change in equity.
Own shares
Own shares are held by the Employee Benefit Trust (EBT). The holding of the EBT comprises own shares that have not vested unconditionally to employees of the Group. In both the Group and Company, own shares are recorded at cost and are deducted from retained earnings.
Segmental information
Key management information, including revenues, margins, investment performance, distribution costs and AuM flows, which is relevant to the operation of the Group, is reported to and reviewed by the Board on the basis of the investment management business as a whole. Hence the Group's management considers that the Group's services and its operations are not run on a discrete geographic basis and comprise one business segment (being provision of investment management services).
Company-only accounting policies
In addition to the above accounting policies, the following specifically relates to the Company:
Investment in subsidiaries
Investments by the Company in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
5) Segmental information
The Group's operations are reported to and reviewed by the Board on the basis of the investment management business as a whole, hence the Group is treated as a single segment. The key management information considered is adjusted EBITDA which is £222.5 million for the year as reconciled in the Business review (FY2018/19: adjusted EBITDA of £201.8 million was derived by adjusting operating profit by £4.8 million of depreciation and amortisation expense, £1.0 million of income related to seed capital and £4.8 million of foreign exchange gains). The disclosures below are supplementary, and provide the location of the Group's non-current assets at year end other than financial assets and deferred tax assets. Disclosures relating to revenue by location are in note 6.
Analysis of non-current assets by geography
|
|
2020 |
2019 |
|
United Kingdom and Ireland |
26.4 |
20.6 |
|
United States |
72.4 |
69.3 |
|
Other |
3.9 |
1.5 |
|
Total non-current assets |
102.7 |
91.4 |
6) Revenue
Management fees are accrued throughout the year in line with prevailing levels of assets under management and performance fees are recognised when they can be estimated reliably and it is probable that they will crystallise. The Group is not considered to be reliant on any single source of revenue. During the year, none of the Group's funds (FY2018/19: none) provided more than 10% of total revenue in the year respectively when considering management fees and performance fees on a combined basis.
Analysis of revenue by geography
|
|
2020 |
2019 |
|
United Kingdom and Ireland |
287.0 |
265.1 |
|
United States |
24.3 |
24.1 |
|
Other |
26.7 |
27.1 |
|
Total revenue |
338.0 |
316.3 |
7) Foreign exchange
The foreign exchange rates which had a material impact on the Group's results are the US dollar, the Euro, the Indonesian rupiah and the Colombian peso.
|
£1 |
Closing rate as at 30 June 2020 |
Closing rate |
Average rate year ended |
Average rate year ended |
|
US dollar |
1.2356 |
1.2727 |
1.2637 |
1.2958 |
|
Euro |
1.1001 |
1.1176 |
1.1331 |
1.1345 |
|
Indonesian rupiah |
17,651 |
17,980 |
18,134 |
18,660 |
|
Colombian peso |
4,620 |
4,082 |
4,468 |
4,058 |
Foreign exchange gains and losses are shown below.
|
|
2020 |
2019 |
|
Net realised and unrealised hedging gains |
1.5 |
5.1 |
|
Translation gains on non-Sterling denominated monetary assets and liabilities |
5.5 |
6.2 |
|
Total foreign exchange gains |
7.0 |
11.3 |
8) Finance income
|
|
2020 |
2019 |
|
Finance income |
|
|
|
Interest and investment income |
11.1 |
13.2 |
|
Net realised gains on seed capital investments measured at fair value |
4.0 |
2.4 |
|
Net unrealised gains/(losses) on seed capital investments measured at fair value |
(2.6) |
1.8 |
|
Interest expense on lease liabilities (note 16) |
(0.5) |
- |
|
Total finance income |
12.0 |
17.4 |
Included within interest and investment income are gains of £4.8 million (FY 2018/19: £5.5 million gains) from investment securities on consolidated funds (note 20d).
Included within net realised and unrealised gains on seed capital investments measured at fair value are £2.8 million gains (FY2018/19: £3.2 million gains) in relation to held for sale investments (note 20a), £0.8 million losses (FY2018/19: £0.3 million gains) on financial assets measured at FVTPL (note 20b) and £4.5 million losses (FY2018/19: £0.7 million gains) on non-current financial assets measured at fair value (note 20c).
9) Personnel expenses
Personnel expenses during the year comprised the following:
|
|
2020 |
2019 |
|
Wages and salaries |
22.2 |
21.2 |
|
Performance-related cash bonuses |
21.1 |
26.4 |
|
Share-based payments |
33.9 |
31.3 |
|
Social security costs |
1.9 |
1.9 |
|
Pension costs |
1.9 |
1.6 |
|
Other costs |
1.6 |
1.8 |
|
Total personnel expenses |
82.6 |
84.2 |
Number of employees
At 30 June 2020, the number of investment management employees of the Group (including Executive Directors) during the year was as follows:
|
|
Average for the year ended |
Average for the year |
At |
At |
|
Total investment management employees |
292 |
281 |
291 |
288 |
Directors' remuneration
There are retirement benefits accruing to two Executive Directors under a defined contribution scheme (FY2018/19: two).
10) Share-based payments
The cost related to share-based payments recognised by the Group in the statement of comprehensive income is shown below:
|
Group |
2020 |
2019 |
|
Omnibus Plan |
33.5 |
31.3 |
|
Phantom Bonus Plan |
0.4 |
- |
|
Total share-based payments expense |
33.9 |
31.3 |
The total expense recognised for the year in respect of equity-settled share-based payment awards was £28.9 million (FY2018/19: £27.3 million), of which £2.0 million (FY2018/19: £1.9 million) relates to share awards granted to key management personnel.
The Executive Omnibus Incentive Plan (Omnibus Plan)
The Omnibus Plan was introduced prior to the Company listing in October 2006 and provides for the grant of share awards, market value options, premium cost options, discounted options, linked options, phantoms and/or nil-cost options to employees. The Omnibus Plan will also allow bonuses to be deferred in the form of share awards with or without matching shares. Awards granted under the Omnibus Plan typically vest after five years from date of grant, with the exception of bonus awards which vest after the shorter of five years from date of grant or on the date of termination of employment. Awards under the Omnibus Plan are accounted for as equity-settled, with the exception of phantoms which are classified as cash-settled.
The combined cash and equity-settled payments below represent the share-based payments relating to the Omnibus Plan.
Total expense by year awards were granted (excluding national insurance)
|
Group and Company |
2020 |
2019 |
|
2014 |
- |
2.0 |
|
2015 |
3.3 |
3.4 |
|
2016 |
2.7 |
2.7 |
|
2017 |
3.7 |
3.8 |
|
2018 |
3.8 |
3.8 |
|
2019 |
4.8 |
11.6 |
|
2020 |
10.9 |
- |
|
Total Omnibus share-based payments expense reported in comprehensive income |
29.2 |
27.3 |
Awards outstanding under the Omnibus Plan were as follows:
i) Equity-settled awards
|
Group and Company |
2020 |
2020 |
2019 |
2019 |
|
Restricted share awards |
|
|
|
|
|
At the beginning of the year |
21,233,773 |
£3.04 |
22,155,889 |
£3.14 |
|
Granted |
4,026,981 |
£4.39 |
4,606,773 |
£3.33 |
|
Vested |
(3,063,448) |
£3.16 |
(4,828,408) |
£3.69 |
|
Forfeited |
(123,968) |
£3.04 |
(700,481) |
£3.44 |
|
Awards outstanding at year end |
22,073,338 |
£3.27 |
21,233,773 |
£3.04 |
|
|
|
|
|
|
|
Bonus share awards |
|
|
|
|
|
At the beginning of the year |
9,705,156 |
£3.07 |
9,151,992 |
£3.12 |
|
Granted |
2,060,811 |
£4.38 |
2,435,432 |
£3.33 |
|
Vested |
(1,072,680) |
£3.09 |
(1,882,268) |
£3.76 |
|
Forfeited |
- |
- |
- |
- |
|
Awards outstanding at year end |
10,693,287 |
£3.32 |
9,705,156 |
£3.07 |
|
|
|
|
|
|
|
Matching share awards |
|
|
|
|
|
At the beginning of the year |
9,730,005 |
£3.08 |
9,162,119 |
£3.15 |
|
Granted |
2,092,986 |
£4.38 |
2,450,926 |
£3.33 |
|
Vested |
(1,072,680) |
£3.09 |
(1,598,210) |
£3.78 |
|
Forfeited |
- |
- |
(284,830) |
£3.60 |
|
Awards outstanding at year end |
10,750,311 |
£3.33 |
9,730,005 |
£3.08 |
|
Total |
43,516,936 |
£3.30 |
40,668,934 |
£3.06 |
ii) Cash-settled awards
|
Group and Company |
2020 |
2020 |
2019 |
2019 |
|
Restricted share awards |
|
|
|
|
|
At the beginning of the year |
119,514 |
£3.18 |
143,542 |
£3.37 |
|
Granted |
31,345 |
£4.38 |
22,920 |
£3.33 |
|
Vested |
(9,062) |
£3.09 |
(14,192) |
£3.83 |
|
Forfeited |
(500) |
£4.38 |
(32,756) |
£3.83 |
|
Awards outstanding at year end |
141,297 |
£3.45 |
119,514 |
£3.18 |
|
|
|
|
|
|
|
Bonus share awards |
|
|
|
|
|
At the beginning of the year |
68,054 |
£3.21 |
86,673 |
£3.44 |
|
Granted |
18,890 |
£4.38 |
16,592 |
£3.33 |
|
Vested |
- |
- |
(35,211) |
£3.83 |
|
Forfeited |
- |
- |
- |
- |
|
Awards outstanding at year end |
86,944 |
£3.47 |
68,054 |
£3.21 |
|
|
|
|
|
|
|
Matching share awards |
|
|
|
|
|
At the beginning of the year |
68,054 |
£3.21 |
86,673 |
£3.44 |
|
Granted |
18,890 |
£4.38 |
16,592 |
£3.33 |
|
Vested |
- |
- |
(10,644) |
£3.83 |
|
Forfeited |
- |
- |
(24,567) |
£3.83 |
|
Awards outstanding at year end |
86,944 |
£3.47 |
68,054 |
£3.21 |
|
Total |
315,185 |
£3.46 |
255,622 |
£3.20 |
iii) Total awards
|
Group and Company |
2020 |
2020 |
2019 |
2019 |
|
Restricted share awards |
|
|
|
|
|
At the beginning of the year |
21,353,287 |
£3.04 |
22,299,431 |
£3.14 |
|
Granted |
4,058,326 |
£4.39 |
4,629,693 |
£3.33 |
|
Vested |
(3,072,510) |
£3.16 |
(4,842,600) |
£3.69 |
|
Forfeited |
(124,468) |
£3.05 |
(733,237) |
£3.46 |
|
Awards outstanding at year end |
22,214,635 |
£3.27 |
21,353,287 |
£3.04 |
|
|
|
|
|
|
|
Bonus share awards |
|
|
|
|
|
At the beginning of the year |
9,773,210 |
£3.07 |
9,238,665 |
£3.12 |
|
Granted |
2,079,701 |
£4.38 |
2,452,024 |
£3.33 |
|
Vested |
(1,072,680) |
£3.09 |
(1,917,479) |
£3.76 |
|
Forfeited |
- |
- |
- |
- |
|
Awards outstanding at year end |
10,780,231 |
£3.33 |
9,773,210 |
£3.07 |
|
|
|
|
|
|
|
Matching share awards |
|
|
|
|
|
At the beginning of the year |
9,798,059 |
£3.08 |
9,248,792 |
£3.15 |
|
Granted |
2,111,876 |
£4.38 |
2,467,518 |
£3.33 |
|
Vested |
(1,072,680) |
£3.09 |
(1,608,854) |
£3.78 |
|
Forfeited |
- |
- |
(309,397) |
£3.62 |
|
Awards outstanding at year end |
10,837,255 |
£3.33 |
9,798,059 |
£3.08 |
|
Total |
43,832,121 |
£3.30 |
40,924,556 |
£3.06 |
The weighted average fair value of awards granted to employees under the Omnibus Plan during the year was £4.38 (FY2018/19: £3.33), calculated as the average Ashmore Group plc closing share price for the five business days prior to grant. For Executive Directors, the fair value of awards also takes into account the performance conditions set out in the Remuneration report.
Where the grant of restricted and matching share awards is linked to the annual bonus process, the fair value of the awards is spread over a period including the current financial year and the subsequent five years to their vesting date when the grantee becomes unconditionally entitled to the underlying shares. The fair value of the remaining awards is spread over the period from the date of grant to the vesting date.
The liability arising from cash-settled awards under the Omnibus Plan at the end of the year and reported within trade and other payables on the Group consolidated balance sheet is £0.8 million (30 June 2019: £0.5 million) of which £nil (30 June 2019: £nil) relates to vested awards.
The Approved Company Share Option Plan (CSOP)
The CSOP was also introduced prior to the Company listing in October 2006 and is an option scheme providing for the grant of market value options to employees with the aggregate value of outstanding options not exceeding £30,000 per employee. The CSOP qualifies as a UK tax approved company share option plan and approval thereto has been obtained from HMRC. To date, there have been no awards made under the CSOP.
11) Other expenses
Other expenses consist of the following:
|
|
2020 |
2019 |
|
Travel |
1.7 |
2.7 |
|
Professional fees |
4.9 |
5.6 |
|
Information technology and communications |
6.8 |
6.1 |
|
Amortisation of intangible assets (note 15) |
0.2 |
4.1 |
|
Operating leases |
0.1 |
2.7 |
|
Depreciation of property, plant and equipment (note 16) |
3.2 |
0.7 |
|
Premises-related costs |
1.2 |
1.3 |
|
Insurance |
0.6 |
0.6 |
|
Research costs |
0.5 |
0.5 |
|
Auditor's remuneration (see below) |
0.6 |
0.8 |
|
Consolidated funds (note 20d) |
2.2 |
3.3 |
|
Other expenses |
4.6 |
3.2 |
|
|
26.6 |
31.6 |
Operating leases expense in the current year relates to short-term leases where the Group has applied the optional exemption contained within IFRS 16, which permits the cost of short-term (less than 12 months) leases to be expensed on a straight-line basis over the lease term.
Auditor's remuneration
|
|
2020 |
2019 |
|
Fees for statutory audit services: |
|
|
|
- Fees payable to the Company's auditor for the audit of the Group's accounts |
0.2 |
0.2 |
|
- Fees payable to the Company's auditor and its associates for the audit of the Company's subsidiaries pursuant to legislation |
0.3 |
0.3 |
|
|
|
|
|
Fees for non-audit services: |
|
|
|
- Other non-audit services required by regulation |
0.1 |
0.1 |
|
- Other assurance services |
- |
0.1 |
|
- Tax services |
- |
0.1 |
|
|
0.6 |
0.8 |
12) Taxation
Analysis of tax charge for the year:
|
|
2020 |
2019 |
|
Current tax |
|
|
|
UK corporation tax on profits for the year |
24.7 |
36.3 |
|
Overseas corporation tax charge |
16.8 |
8.2 |
|
Adjustments in respect of prior years |
(2.8) |
(2.7) |
|
|
38.7 |
41.8 |
|
Deferred tax |
|
|
|
Origination and reversal of temporary differences (see note 18) |
(1.2) |
(3.4) |
|
Effect on deferred tax balance of changes in corporation tax rates (see note 18) |
(0.7) |
- |
|
Tax expense |
36.8 |
38.4 |
Factors affecting tax charge for the year
|
|
2020 |
2019 |
|
Profit before tax |
221.5 |
219.9 |
|
|
|
|
|
Profit on ordinary activities multiplied by the UK tax rate of 19% (FY2018/19: 19%) |
42.1 |
41.8 |
|
|
|
|
|
Effects of: |
|
|
|
Non-deductible expenses |
0.5 |
0.3 |
|
Deduction in respect of vested shares/exercised options (Part 12, Corporation Tax Act 2009) |
(1.2) |
(1.1) |
|
Different rate of taxes on overseas profits |
(4.2) |
1.5 |
|
Non-taxable income |
(0.1) |
(0.3) |
|
Derecognition/(recognition) of historical deferred tax assets |
2.9 |
(0.8) |
|
Other items |
0.3 |
(0.3) |
|
Adjustments in respect of prior years |
(3.5) |
(2.7) |
|
Tax expense |
36.8 |
38.4 |
The tax charge recognised in reserves within other comprehensive income is as follows:
|
|
2020 |
2019 |
|
Current tax expense on foreign exchange gains |
- |
0.4 |
|
Tax credit recognised in reserves |
- |
0.4 |
The expected reduction in the UK tax rate to 17% from 1 April 2020 enacted by Finance Act 2016 was reversed in Finance Act 2020. The UK statutory tax rate remains 19% and hence, the measurement of the Group's UK deferred tax assets and liabilities has been updated to reflect the statutory tax rate of 19% as at 30 June 2020.
13) Earnings per share
Basic earnings per share at 30 June 2020 of 27.35 pence (30 June 2019: 26.57 pence) is calculated by dividing the profit after tax for the financial year attributable to equity holders of the parent of £182.1 million (FY2018/19: £178.6 million) by the weighted average number of ordinary shares in issue during the year, excluding own shares.
Diluted earnings per share is calculated based on basic earnings per share adjusted for all dilutive potential ordinary shares. There is no difference between the profit for the year attributable to equity holders of the parent used in the basic and diluted earnings per share calculations.
Reconciliation of the weighted average number of shares used in calculating basic and diluted earnings per share is shown below.
|
|
2020 |
2019 |
|
Weighted average number of ordinary shares used in the calculation of basic earnings per share |
666,019,404 |
672,361,489 |
|
Effect of dilutive potential ordinary shares - share awards |
43,241,702 |
41,007,535 |
|
Weighted average number of ordinary shares used in the calculation of diluted earnings per share |
709,261,106 |
713,369,024 |
14) Dividends
Dividends paid in the year
|
Company |
2020 |
2019 |
|
Final dividend for FY2018/19 - 12.10p (FY2017/18: 12.10p) |
86.0 |
86.0 |
|
Interim dividend for FY2019/20 - 4.80p (FY2018/19: 4. 55 p) |
34.0 |
32.3 |
|
|
120.0 |
118.3 |
In addition, the Group paid £2.7 million (FY2018/19: £2.4 million) of dividends to non-controlling interests.
Dividends declared/proposed in respect of the year
|
Company |
2020 |
2019 |
|
Interim dividend per share paid |
4.80 |
4.55 |
|
Final dividend per share proposed |
12.10 |
12.10 |
|
|
16.90 |
16.65 |
On 10 September 2020, the Board proposed a final dividend of 12.10 pence per share for the year ended 30 June 2020. This has not been recognised as a liability of the Group at the year end as it has not yet been approved by shareholders. Based on the number of shares in issue at the year end that qualify to receive a dividend, the total amount payable would be £85.5 million.
15) Goodwill and intangible assets
|
Group |
Goodwill |
Fund management intangible assets |
Total |
|
Cost (at original exchange rate) |
|
|
|
|
At 30 June 2018 |
57.5 |
39.5 |
97.0 |
|
Acquisitions |
12.9 |
0.9 |
13.8 |
|
Fully amortised |
- |
(39.5) |
(39.5) |
|
At 30 June 2020 and 2019 |
70.4 |
0.9 |
71.3 |
|
|
|
|
|
|
Accumulated amortisation and impairment |
|
|
|
|
At 30 June 2018 |
- |
(39.9) |
(39.9) |
|
Amortisation charge for the year |
- |
(4.1) |
(4.1) |
|
Fully amortised |
- |
43.9 |
43.9 |
|
At 30 June 2019 |
- |
(0.1) |
(0.1) |
|
Amortisation charge for the year |
- |
(0.2) |
(0.2) |
|
At 30 June 2020 |
- |
(0.3) |
(0.3) |
|
|
|
|
|
|
Net book value |
|
|
|
|
At 30 June 2018 |
70.3 |
3.9 |
74.2 |
|
Acquisitions |
12.9 |
0.9 |
13.8 |
|
Accumulated amortisation for the year |
- |
(4.1) |
(4.1) |
|
Foreign exchange revaluation through reserves* |
3.3 |
0.1 |
3.4 |
|
At 30 June 2019 |
86.5 |
0.8 |
87.3 |
|
Accumulated amortisation for the year |
- |
(0.2) |
(0.2) |
|
Foreign exchange revaluation through reserves* |
2.6 |
- |
2.6 |
|
At 30 June 2020 |
89.1 |
0.6 |
89.7 |
* Foreign exchange revaluation through reserves is a result of the retranslation of US dollar-denominated intangibles and goodwill.
|
Company |
Goodwill |
|
Cost |
|
|
At the beginning and end of the year |
4.1 |
|
Net carrying amount at 30 June 2020 and 2019 |
4.1 |
Goodwill
The Group's goodwill balance relates to the acquisition of subsidiaries. The Company's goodwill balance relates to the acquisition of the business from ANZ in 1999.
Goodwill acquired in a business combination is allocated to the cash-generating units that are expected to benefit from that business combination. It is the Group's judgement that the lowest level of cash-generating unit used to determine impairment is the investment management segment level. The Group has assessed that it consists of a single cash-generating unit for the purposes of monitoring and assessing goodwill for impairment. This reflects the Group's global operating model, based on a single operating platform, into which acquired businesses are fully integrated and from which acquisition-related synergies are expected to be realised. Based on this model, the Group's investment management activities are considered as a single cash-generating unit, for which key management regularly receive and review internal financial information.
An annual impairment review of goodwill was undertaken for the year ending 30 June 2020, and no factors indicating potential impairment of goodwill were noted. Goodwill is tested for impairment annually or whenever there is an indication that the carrying amount may not be recoverable based on management's judgements regarding the future prospects of the business, market capitalisation, macroeconomic and market considerations. The key assumption used to determine the recoverable amount is based on a fair value calculation using the Company's market share price.
Based on the calculation as at 30 June 2020 using a market share price of £4.17, the recoverable amount was in excess of the carrying value of goodwill and no impairment was implied. In addition, the sensitivity of the recoverable amount to a 10% change in the Company's market share price will not lead to any impairment. Therefore, no impairment loss has been recognised in the current or preceding years.
Fund management intangible assets
Intangible assets as at 30 June 2020 comprise fund management contracts and a contractually agreed share of carried interest recognised by the Group on the acquisition of Ashmore Avenida (Real Estate) Investments LLP in July 2018. An annual impairment review was undertaken for the year ending 30 June 2020 and no factors were identified suggesting that fund management contracts intangible assets were impaired. The impairment review compares the carrying value to the recoverable amount of the intangible asset, determined as the greater of fair value less costs to sell and the updated discounted valuation of the remaining net earnings. Any impairment is recognised immediately in the statement of comprehensive income but may be reversed if relevant conditions improve.
The discounted value is calculated from the cumulative pre-tax net earnings anticipated to be generated over the remaining economic life, discounted to present value using relevant pre-tax discount rates between 20% and 33% per annum. Cumulative net earnings associated with the fund management contracts were derived from the annual operating profit contribution that would arise from the managed fund assets. The recoverable amounts of the intangible assets were determined to be higher than the carrying values as at 30 June 2020. Accordingly, no impairment charge was recognised during the year.
The sensitivity of the recoverable amounts of intangible assets to a 5% increase in pre-tax discount rate used in calculating the recoverable amount was immaterial. The remaining amortisation periods for fund management contracts range between one to five years.
16) Property, plant and equipment
The Group's property, plant and equipment include ROU assets recognised on the adoption of IFRS 16 Leases on 1 July 2019 (see note 3).
|
|
Group |
Company |
|
Property, plant and equipment owned by the Group |
1.8 |
1.1 |
|
Right-of-use assets |
9.9 |
5.7 |
|
Net book value at 30 June 2020 |
11.7 |
6.8 |
The movement in property, plant and equipment is provided below:
|
Group |
2020 |
2019 |
|
Cost |
|
|
|
At the beginning of the year |
7.7 |
6.5 |
|
ROU assets recognised on adoption of IFRS 16 (note 3) |
12.6 |
- |
|
Additions |
1.0 |
0.9 |
|
Disposals |
(0.3) |
- |
|
Foreign exchange revaluation |
(0.2) |
0.3 |
|
At the end of the year |
20.8 |
7.7 |
|
|
|
|
|
Accumulated depreciation |
|
|
|
At the beginning of the year |
6.2 |
5.4 |
|
Disposals |
(0.3) |
- |
|
Depreciation charge for the year |
3.2 |
0.7 |
|
Foreign exchange revaluation |
- |
0.1 |
|
At the end of the year |
9.1 |
6.2 |
|
Net book value at 30 June |
11.7 |
1.5 |
|
Company |
2020 |
2019 |
|
Cost |
|
|
|
At the beginning of the year |
4.2 |
3.9 |
|
ROU asset recognised on adoption of IFRS 16 (note 3) |
6.9 |
- |
|
Additions |
0.9 |
0.3 |
|
At the end of the year |
12.0 |
4.2 |
|
|
|
|
|
Accumulated depreciation |
|
|
|
At the beginning of the year |
3.7 |
3.4 |
|
Depreciation charge for year |
1.5 |
0.3 |
|
At the end of the year |
5.2 |
3.7 |
|
Net book value at 30 June |
6.8 |
0.5 |
Lease arrangements
The Group leases office space in various countries and enters into operating lease agreements on office premises for lease periods of 12 months to 10 years. Lease terms are negotiated on an individual basis and contain varying terms and conditions depending on location. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. From 1 July 2019, the Group recognises operating leases as ROU assets with corresponding liabilities in accordance with the requirements of IFRS 16 Leases. The Group calculated the lease liabilities using the lessee's incremental borrowing rates that resulted in a weighted average incremental borrowing rate of 4.8%.
The carrying value of ROU assets, lease liabilities and the movement during the year are set out below.
|
|
Group |
Company |
||
|
|
ROU assets |
Lease liabilities |
ROU asset |
Lease liability |
|
At 1 July 2019 (adoption of IFRS 16, note 3) |
12.6 |
12.8 |
6.9 |
6.9 |
|
Lease payments |
- |
(2.8) |
- |
(1.3) |
|
Interest expense (note 8) |
- |
0.5 |
- |
0.3 |
|
Depreciation charge |
(2.5) |
- |
(1.2) |
- |
|
Foreign exchange revaluation through reserves |
(0.2) |
(0.3) |
- |
- |
|
At 30 June 2020 |
9.9 |
10.2 |
5.7 |
5.9 |
The contractual maturities on the minimum lease payments under lease liabilities are provided below:
|
|
Group |
Company |
||
|
Maturity analysis - contractual undiscounted cash flows |
30 June 2020 |
30 June 2019 |
30 June 2020 |
30 June 2019 |
|
Within 1 year |
2.6 |
2.5 |
1.3 |
1.3 |
|
Between 1 and 5 years |
8.2 |
8.7 |
5.2 |
5.2 |
|
Later than 5 years |
1.1 |
2.6 |
- |
1.0 |
|
Total undiscounted lease liabilities |
11.9 |
13.8 |
6.5 |
7.5 |
|
|
|
|
|
|
|
Lease liabilities are presented in the balance sheet as follows: |
|
|
|
|
|
Current |
2.0 |
- |
1.1 |
- |
|
Non-current |
8.2 |
- |
4.8 |
- |
|
Total lease liabilities |
10.2 |
- |
5.9 |
- |
|
|
|
|
|
|
|
Amounts recognised under financing activities in the cash flow statement: |
|
|
|
|
|
Payment of lease liabilities |
2.3 |
- |
1.0 |
- |
|
Interest paid |
0.5 |
- |
0.3 |
- |
|
Total cash outflow for leases |
2.8 |
- |
1.3 |
- |
17) Trade and other receivables
|
|
Group |
Company |
||
|
|
2020 |
2019 |
2020 |
2019 |
|
Current |
|
|
|
|
|
Trade debtors |
90.5 |
73.9 |
1.6 |
3.7 |
|
Prepayments |
3.9 |
4.1 |
1.4 |
1.3 |
|
Loans due from subsidiaries |
- |
- |
464.8 |
471.9 |
|
Amounts due from subsidiaries |
- |
- |
50.3 |
17.7 |
|
Other receivables |
1.8 |
1.4 |
0.1 |
0.4 |
|
Total trade and other receivables |
96.2 |
79.4 |
518.2 |
495.0 |
Group trade debtors include accrued management and performance fees in respect of investment management services provided up to 30 June 2020. Management fees are received in cash when the funds' net asset values are determined, typically every month or every quarter. Performance fees are accrued when crystallised, and amounted to £0.1 million as at 30 June 2020 (30 June 2019: £4.3 million). The majority of fees are deducted from the net asset values of the respective funds by independent administrators and therefore, the credit risk of fee receivables is minimal. As at 30 June 2020, no balances are past due and the assessed provision under the IFRS 9 expected credit loss model was immaterial (30 June 2019: no balances are past due and immaterial provision assessed under IFRS 9 expected credit loss model).
Loans due from subsidiaries for the Company include intercompany loans related to seed capital investments held by subsidiaries. Amounts due from subsidiaries represent trading balances that are short term in nature and regularly settled during the year. The majority of the intercompany loans are held with subsidiaries that hold seed capital investments and cash invested in daily-traded investment funds. Under the IFRS 9 expected credit loss model, credit risk is assessed by determining the borrower's capacity to meet contractual cash flow obligations, taking into account the available net assets to repay the intercompany loan in future periods. As at 30 June 2020, no balances are past due and the assessed provision for expected credit losses was immaterial (30 June 2019: no balances are past due and immaterial provision assessed under IFRS 9 expected credit loss model).
18) Deferred taxation
Deferred tax assets and liabilities recognised by the Group and Company at year end are attributable to the following:
|
|
2020 |
2019 |
||||
|
Group |
Other temporary differences |
Share-based payments |
Total |
Other temporary differences |
Share-based payments |
Total |
|
Deferred tax assets |
7.7 |
22.9 |
30.6 |
12.0 |
18.2 |
30.2 |
|
Deferred tax liabilities |
(6.9) |
- |
(6.9) |
(8.4) |
- |
(8.4) |
|
|
0.8 |
22.9 |
23.7 |
3.6 |
18.2 |
21.8 |
|
|
|
|
|
|
|
|
|
|
2020 |
2019 |
||||
|
Company |
Other temporary differences |
Share-based payments |
Total |
Other temporary differences |
Share-based payments |
Total |
|
Deferred tax assets |
0.1 |
20.5 |
20.6 |
0.3 |
16.3 |
16.6 |
Movement of deferred tax balances
The movement in the deferred tax balances between the balance sheet dates has been reflected in the statement of comprehensive income as follows:
|
Group |
Other temporary differences |
Share-based payments |
Total |
|
At 30 June 2018 |
3.7 |
14.8 |
18.5 |
|
Credited/(charged) to the consolidated statement of comprehensive income |
(0.1) |
3.4 |
3.3 |
|
At 30 June 2019 |
3.6 |
18.2 |
21.8 |
|
Credited/(charged) to the consolidated statement of comprehensive income |
(2.8) |
4.7 |
1.9 |
|
At 30 June 2020 |
0.8 |
22.9 |
23.7 |
|
|
|
|
|
|
Company |
Other temporary differences |
Share-based payments |
Total |
|
At 30 June 2018 |
0.2 |
12.8 |
13.0 |
|
Credited/(charged) to the statement of comprehensive income |
0.1 |
3.5 |
3.6 |
|
At 30 June 2019 |
0.3 |
16.3 |
16.6 |
|
Credited/(charged) to the statement of comprehensive income |
(0.2) |
4.2 |
4.0 |
|
At 30 June 2020 |
0.1 |
20.5 |
20.6 |
Refer to note 12 for details on changes to the UK corporation tax rate which have been reflected in the Group's deferred tax position.
19) Fair value of financial instruments
The Group has an established control framework with respect to the measurement of fair values. This framework includes committees that have overall responsibility for all significant fair value measurements. Each committee regularly reviews significant inputs and valuation adjustments. If third-party information is used to measure fair value, the committee assesses and documents the evidence obtained from the third parties to support such valuations. There are no material differences between the carrying amounts of financial assets and liabilities and their fair values at the balance sheet date.
Fair value hierarchy
The Group measures fair values using the following fair value levels that reflect the significance of inputs used in making the measurements, based on the degree to which the fair value is observable:
- Level 1: Valuation is based upon a quoted market price in an active market for an identical instrument. This fair value measure relates to the valuation of quoted and exchange traded equity and debt securities.
- Level 2: Valuation techniques are based upon observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This fair value measure relates to the valuation of quoted equity securities in inactive markets or in interests in unlisted funds whose net asset values are referenced to the fair values of the listed or exchange traded securities held by those funds. Valuation techniques may include using a broker quote in an inactive market or an evaluated price based on a compilation of primarily observable market information utilising information readily available via external sources.
- Level 3: Fair value measurements are derived from valuation techniques that include inputs not based on observable market data.
For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of the financial year.
The fair value hierarchy of financial instruments which are carried at fair value at year end is summarised below:
|
|
2020 |
2019 |
||||||
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
|
Financial assets |
|
|
|
|
|
|
|
|
|
Investment securities |
125.1 |
60.6 |
48.8 |
234.5 |
170.4 |
35.8 |
72.5 |
278.7 |
|
Non-current assets held for sale |
- |
43.1 |
- |
38.6 |
- |
44.7 |
- |
44.7 |
|
Financial assets measured at FVTPL |
- |
10.9 |
0.7 |
11.6 |
- |
14.4 |
1.6 |
16.0 |
|
Non-current financial assets at fair value |
- |
0.1 |
27.9 |
28.0 |
- |
- |
31.6 |
31.6 |
|
|
125.1 |
114.7 |
77.4 |
312.7 |
170.4 |
94.9 |
105.7 |
371.0 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
Third-party interests in consolidated funds |
65.1 |
10.6 |
10.4 |
86.1 |
70.6 |
12.6 |
23.8 |
107.0 |
|
Non-current liabilities held for sale |
- |
4.5 |
- |
4.5 |
- |
- |
- |
- |
|
Derivative financial instruments |
- |
1.7 |
- |
1.7 |
- |
1.1 |
- |
1.1 |
|
|
65.1 |
16.8 |
10.4 |
92.3 |
70.6 |
13.7 |
23.8 |
108.1 |
Transfers between levels
The Group recognises transfers into and transfers out of fair value hierarchy levels at each reporting period based on assessments of price inputs used in the valuation of financial assets. There were no transfers between level 1, level 2 and level 3 of the fair value hierarchy during the year.
Fair value measurements using significant unobservable inputs (level 3)
The following table presents the changes in level 3 items for the years ended 30 June 2020 and 2019:
|
|
Investment securities |
Financial |
Non-current financial assets at fair value |
Third-party interests in consolidated funds |
|
At 30 June 2018 |
69.7 |
- |
23.9 |
32.7 |
|
Reclassification on adoption of IFRS 9 |
- |
5.6 |
- |
- |
|
Additions |
20.2 |
- |
9.3 |
5.9 |
|
Disposals |
(6.6) |
(2.2) |
(0.8) |
(3.9) |
|
Transfers to level 1 |
(16.5) |
- |
- |
(8.3) |
|
Unrealised gains/(losses) recognised in finance income |
1.3 |
(1.8) |
(0.9) |
(2.6) |
|
Unrealised gains recognised in reserves |
4.4 |
- |
0.1 |
- |
|
At 30 June 2019 |
72.5 |
1.6 |
31.6 |
23.8 |
|
Additions |
11.7 |
- |
3.7 |
3.9 |
|
Disposals |
(26.7) |
(0.1) |
(2.6) |
(9.8) |
|
Unrealised losses recognised in finance income |
(6.1) |
(0.8) |
(4.7) |
(7.5) |
|
Unrealised losses recognised in reserves |
(2.6) |
- |
(0.1) |
- |
|
At 30 June 20 20 |
48.8 |
0.7 |
27.9 |
10.4 |
Valuation of level 3 financial assets recognised at fair value on a recurring basis using valuation techniques
Investments valued using valuation techniques include financial investments which, by their nature, do not have an externally quoted price based on regular trades, and financial investments for which markets are no longer active as a result of market conditions e.g. market illiquidity. The valuation techniques used include comparison to recent arm's length transactions, market approach making reference to other instruments that are substantially the same, discounted cash flow analysis, enterprise valuation and net assets approach. These techniques may include a number of assumptions relating to variables such as interest rate and price earnings multiples. Changes in assumptions relating to these variables could positively or negatively impact the reported fair value of these instruments. When determining the inputs into the valuation techniques used, priority is given to publicly available prices from independent sources when available, but overall the source of pricing is chosen with the objective of arriving at a fair value measurement that reflects the price at which an orderly transaction would take place between market participants on the measurement date.
The fair value estimates are made at a specific point in time, based upon available market information and judgements about the financial instruments, including estimates of the timing and amount of expected future cash flows. Such estimates could include a marketability adjustment to reflect illiquidity and/or non-transferability that could result from offering for sale at one time the Group's entire holdings of a particular financial instrument. The estimates of fair value reflect the impact of the COVID-19 pandemic up to the end of the reporting period. Further details on the estimates and judgements applied by the Group are provided in note 31.
The following tables show the valuation techniques and the significant unobservable inputs used to estimate the fair value of level 3 investments as at 30 June 2020 and 2019, and the associated sensitivity to changes in unobservable inputs to a reasonable alternative.
|
Asset class and valuation technique |
2020 |
|
Significant |
|
Range of estimates |
|
Sensitivity factor |
Change in |
|
Unquoted securities |
|
|
|
|
|
|
|
|
|
Market multiple and discount |
14.0 |
|
EBITDA multiple |
|
10x-20x |
|
+/- 1x |
+/- 1.4 |
|
|
Marketability adjustment |
|
10%-30% |
|
+/- 5% |
-/+ 0.9 |
||
|
Market multiple, discounted cash flows and discount |
34.6 |
|
Market multiple |
|
5x-10x |
|
+/- 1x |
+/- 2.4 |
|
|
Marketability adjustment |
|
10%-30% |
|
+/- 5% |
-/+ 4.4 |
||
|
|
Discount rate |
|
10%-20% |
|
+/- 5% |
-/+ 4.0 |
||
|
Unquoted funds |
|
|
|
|
|
|
|
|
|
Net assets approach |
28.8 |
|
NAV |
|
1x |
|
+/- 5% |
+/- 1.4 |
|
Total level 3 investments |
77.4 |
|
|
|
|
|
|
|
|
Asset class and valuation technique |
2019 |
|
Significant |
|
Range of estimates |
|
Sensitivity factor |
Change in |
|
Unquoted securities |
|
|
|
|
|
|
|
|
|
Market multiple and discount, recent transaction |
42.6 |
|
EBITDA multiple |
|
10x-20x |
|
+/- 1x |
+/- 2.1 |
|
|
Marketability adjustment |
|
10%-30% |
|
+/- 5% |
-/+ 1.4 |
||
|
Market multiple, discounted cash flows and discount |
26.2 |
|
Market multiple |
|
5x-10x |
|
+/- 1x |
+/- 1.8 |
|
|
Marketability adjustment |
|
10%-30% |
|
+/- 5% |
-/+ 3.2 |
||
|
|
Discount rate |
|
10%-20% |
|
+/- 5% |
-/+ 3.6 |
||
|
Adjusted value, broker quotes |
3.1 |
|
Marketability adjustment |
|
20%-35% |
|
+/- 5% |
-/+ 0.2 |
|
Unquoted funds |
|
|
|
|
|
|
|
|
|
Net assets approach |
33.8 |
|
NAV |
|
1x |
|
+/- 5% |
+/- 1.7 |
|
Total level 3 investments |
105.7 |
|
|
|
|
|
|
|
The sensitivity demonstrates the effect of a change in one unobservable input while other assumptions remain unchanged. There may be a correlation between the unobservable inputs and other factors that has not been considered. It should also be noted that some of the sensitivities are non-linear, therefore, larger or smaller impacts should not be interpolated or extrapolated from these results.
Financial instruments not measured at fair value
Financial assets and liabilities that are not measured at fair value include cash and cash equivalents, trade and other receivables, and trade and other payables. The carrying value of financial assets and financial liabilities not measured at fair value is considered a reasonable approximation of fair value as at 30 June 2020 and 2019.
20) Seed capital investments
The Group considers itself a sponsor of an investment fund when it facilitates the establishment of a fund in which the Group is the investment manager. The Group ordinarily provides seed capital in order to provide initial scale and facilitate marketing of the funds to third-party investors. Aggregate interests held by the Group include seed capital, management fees and performance fees. The Group generates management and performance fee income from managing the assets on behalf of third-party investors.
The movements of seed capital investments and related items during the year are as follows:
|
Group |
Held-for- |
Available-for-sale investments |
Financial assets measured at fair value |
Investment |
Other |
Third-party |
Non-current financial assets measured at fair value |
Total |
|
Carrying amount at 30 June 2018 |
6.8 |
5.6 |
23.5 |
219.1 |
5.5 |
(76.1) |
43.9 |
228.3 |
|
Reclassification: |
|
|
|
|
|
|
|
|
|
Adoption of IFRS 9 |
- |
(5.6) |
5.6 |
- |
- |
- |
- |
- |
|
HFS investments to consolidated funds |
(10.9) |
- |
- |
11.6 |
- |
(0.7) |
- |
- |
|
FVTPL to consolidated funds |
- |
- |
(9.8) |
35.4 |
- |
(25.6) |
- |
- |
|
Consolidated funds to FVTPL |
- |
- |
1.2 |
(2.0) |
- |
0.8 |
- |
- |
|
Net purchases, disposals and fair value changes |
48.8 |
- |
(4.5) |
14.6 |
8.3 |
(5.4) |
(12.3) |
49.5 |
|
Carrying amount at 30 June 2019 |
44.7 |
- |
16.0 |
278.7 |
13.8 |
(107.0) |
31.6 |
277.8 |
|
Reclassification: |
|
|
|
|
|
|
|
|
|
HFS investments to consolidated funds |
(35.7) |
- |
- |
44.2 |
- |
(8.5) |
- |
- |
|
Consolidated funds to FVTPL |
- |
- |
41.4 |
(77.1) |
- |
35.7 |
- |
- |
|
Net purchases, disposals and fair value changes |
29.6 |
|
(45.8) |
(11.3) |
(2.0) |
(6.3) |
(3.6) |
(39.4) |
|
Carrying amount at 30 June 2020 |
38.6 |
- |
11.6 |
234.5 |
11.8 |
(86.1) |
28.0 |
238.4 |
* Investment securities in consolidated funds are measured at FVTPL.
** Relates to cash and other assets in consolidated funds that are not investment securities, see note 20(d).
*** Included in net purchases, disposals and fair value changes are third-party subscriptions of £50.0 million, redemptions and distributions of £31.5 million, fair value movements of £7.5 million and other non-cash movements in relation to consolidated funds (FY 2018/19: third-party subscriptions of £2.7 million, redemptions of £10.3 million and fair value movements of £3.8 million and other non-cash movements in relation to consolidated funds).
a) Non-current assets and non-current liabilities held for sale
Where Group companies invest seed capital into funds operated and controlled by the Group and the Group is actively seeking to reduce its investment and it is considered highly probable that it will relinquish control within a year, the interests in the funds are treated as held for sale and are recognised as financial assets and liabilities held for sale. During the year, six funds (FY2018/19: four) were seeded in this manner, met the above criteria, and consequently the assets and liabilities of these funds were initially classified as held for sale.
The non-current assets and liabilities held for sale at 30 June 2020 were as follows:
|
|
2020 |
2019 |
|
Non-current financial assets held for sale |
43.1 |
44.7 |
|
Non-current financial liabilities held for sale |
(4.5) |
- |
|
Non-current assets held for sale |
38.6 |
44.7 |
Investments cease to be classified as held for sale when they are no longer controlled by the Group. A loss of control may happen through sale of the investment and/or dilution of the Group's holding. When investments cease to be classified as held for sale, they are classified as financial assets at FVTPL. No such fund was transferred to the FVTPL category during the year (FY2018/19: none).
If the fund remains under the control of the Group for more than one year from the original investment date, it will cease to be classified as held for sale, and will be consolidated line by line after it is assessed that the Group controls the investment fund in accordance with the requirements of IFRS 10. During the year, three such funds (FY2018/19: two) with an aggregate carrying amount of £35.7 million (FY2018/19: 10.9 million) were transferred from held for sale to consolidated funds category. There was no impact on net assets or comprehensive income as a result of the transfer.
Included within finance income are gains of £2.8 million (FY2018/19: gains of £3.2 million) in relation to held for sale investments.
As the Group considers itself to have one segment (refer to note 4), no additional segmental disclosure of held for sale assets or liabilities is applicable.
b) Financial assets measured at fair value through profit or loss
FVTPL investments at 30 June 2020 comprise shares held in debt and equity funds as follows:
|
|
2020 |
2019 |
|
Equity funds |
3.2 |
4.8 |
|
Debt funds |
8.4 |
11.2 |
|
Financial assets measured at fair value |
11.6 |
16.0 |
Included within finance income are losses of £0.8 million (FY2018/19: gains of £0.3 million) on the Group's financial assets measured at FVTPL.
c) Non-current financial assets measured at fair value
Non-current asset investments relate to the Group's holding in closed-end funds and are measured at FVTPL. Fair value is assessed by taking account of the extent to which potential dilution of gains or losses may arise as a result of additional investors subscribing to the fund where the final close of a fund has not occurred.
|
|
2020 |
2019 |
|
Real estate funds |
3.5 |
4.9 |
|
Infrastructure funds |
17.5 |
17.8 |
|
Other funds |
7.0 |
8.9 |
|
Non-current financial assets measured at fair value |
28.0 |
31.6 |
Included within finance income are losses of £4.5 million (FY2018/19: gains of £0.7 million) on the Group's non-current asset investments.
d) Consolidated funds
The Group has consolidated 12 investment funds as at 30 June 2020 (30 June 2019: 13 investment funds), over which the Group is deemed to have control (refer to note 25). Consolidated funds represent seed capital investments where the Group has held its position for a period greater than one year and its interest represents a controlling stake in the fund in accordance with IFRS 10. Consolidated fund assets and liabilities are presented line by line after intercompany eliminations. The table below sets out an analysis of the carrying amounts of interests held by the Group in consolidated investment funds.
|
|
2020 |
2019 |
|
Investment securities* |
234.5 |
278.7 |
|
Cash and cash equivalents |
10.8 |
14.1 |
|
Other** |
1.0 |
(0.3) |
|
Third-party interests in consolidated funds |
(86.1) |
(107.0) |
|
Consolidated seed capital investments |
160.2 |
185.5 |
* Investment securities represent trading securities held by consolidated investment funds and are measured at FVTPL. Note 25 provides a list of the consolidated funds by asset class, and further detailed information at the security level is available in the individual fund financial statements.
** Other includes trade receivables, trade payables and accruals.
The maximum exposure to loss is the carrying amount of the assets held. The Group has not provided financial support or otherwise agreed to be responsible for supporting any consolidated or unconsolidated funds financially.
Included within the consolidated statement of comprehensive income are net losses of £9.0 million (FY2018/19: £6.5 million gains) relating to the Group's share of the results of the individual statements of comprehensive income for each of the consolidated funds, as follows:
|
|
2020 |
2019 |
|
Interest and dividend income |
4.8 |
5.5 |
|
Gains/(losses) on investment securities |
(19.1) |
0.5 |
|
Change in third-party interests in consolidated funds |
7.5 |
3.8 |
|
Other expenses |
(2.2) |
(3.3) |
|
Net gains/(losses) on consolidated funds |
(9.0) |
6.5 |
Included in the Group's cash generated from operations is £3.0 million cash utilised in operations (FY2018/19: £3.1 million cash utilised in operations) relating to consolidated funds.
As of 30 June 2020, the Group's consolidated funds were domiciled in Guernsey, Indonesia, Luxembourg, Saudi Arabia, and the United States.
21) Financial instrument risk management
Group
The Group is subject to strategic and business, client, investment, treasury and operational risks throughout its business. This note discusses the Group's exposure to and management of the following principal risks which arise from the financial instruments it uses: credit risk, liquidity risk, interest rate risk, foreign exchange risk and price risk. Where the Group holds units in investment funds, classified either as held for sale, FVTPL or non-current financial assets, the related financial instrument risk disclosures in the note below categorise exposures based on the Group's direct interest in those funds without looking through to the nature of underlying securities.
Capital management
It is the Group's policy that all entities within the Group have sufficient capital to meet regulatory and working capital requirements and it conducts regular reviews of its capital requirements relative to its capital resources.
As the Group is regulated by the United Kingdom Financial Conduct Authority (FCA), it is required to maintain appropriate capital and perform regular calculations of capital requirements. This includes development of an Internal Capital Adequacy Assessment Process (ICAAP), based upon the FCA's methodologies under the Capital Requirements Directive. The Group's Pillar III disclosures can be found on the Group's website at www.ashmoregroup.com. These disclosures indicate that the Group had excess capital of £555.2 million as at 30 June 2020 (30 June 2019: excess capital of £557.6 million) over the level of capital required under a Pillar II assessment. The objective of the assessment is to check that the Group has adequate capital to manage identified risks and the process includes conducting stress tests to identify capital and liquidity requirements under different future scenarios including a potential downturn.
Credit risk
The Group has exposure to credit risk from its normal activities where the risk is that a counterparty will be unable to pay in full amounts when due.
Exposure to credit risk is monitored on an ongoing basis by senior management and the Group's Risk Management and Control function. The Group has a counterparty and cash management policy in place which, in addition to other controls, restricts exposure to any single counterparty by setting exposure limits and requiring approval and diversification of counterparty banks and other financial institutions. The Group's maximum exposure to credit risk is represented by the carrying value of its financial assets. The table below lists financial assets subject to credit risk.
|
|
Notes |
2020 |
2019 |
|
Investment securities |
19 |
234.5 |
278.7 |
|
Non-current financial assets held for sale |
19 |
43.1 |
44.7 |
|
Financial assets measured at fair value |
19 |
11.6 |
16.0 |
|
Trade and other receivables |
17 |
96.2 |
79.4 |
|
Cash and cash equivalents |
|
500.9 |
477.2 |
|
Total |
|
886.3 |
896.0 |
Ashmore recognises investment securities by virtue of including consolidated funds on its balance sheet on a line-by-line basis. The risk management policies and procedures for the consolidated funds are the responsibility of the governing bodies of the funds. The associated exposures on credit risk, market risk and foreign exchange risk on the investment securities are monitored by the Group's Risk Management and Control function.
In addition, non-current financial assets held for sale and financial assets measured at fair value through profit or loss expose the Group to credit risk from various counterparties, which is monitored and reviewed by the Group.
The Group's cash and cash equivalents, comprising short-term deposits with banks and liquidity funds, are predominantly held with counterparties with credit ratings ranging from A to AAA- as at 30 June 2020 (30 June 2019: A+ to AAA). As at 30 June 2020, the Group held £368.0m (2019: £243.3m) in the Ashmore Global Liquidity Fund.
All trade and other receivables are considered to be fully recoverable and none were overdue at year end (30 June 2019: none). They include fee debtors that arise principally within the Group's investment management business. They are monitored regularly and, historically, default levels have been insignificant, and, unless a client has withdrawn funds, there is an ongoing relationship between the Group and the client. There is no significant concentration of credit risk in respect of fees owing from clients.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or other financial assets.
In order to manage liquidity risk, there is a Group Liquidity Policy to ensure that there is sufficient access to funds to cover all forecast committed requirements for the next 12 months.
The maturity profile of the Group's contractual undiscounted financial liabilities is as follows:
At 30 June 2020
|
|
Within 1 year |
1-5 years |
More than |
Total |
|
Third-party interests in consolidated funds |
86.1 |
- |
- |
86.1 |
|
Derivative financial instruments |
1.7 |
- |
- |
1.7 |
|
Current trade and other receivables |
50.7 |
- |
- |
50.7 |
|
Non-current financial liabilities held for sale |
4.5 |
- |
- |
4.5 |
|
|
143.0 |
- |
- |
143.0 |
At 30 June 2019
|
|
Within 1 year |
1-5 years |
More than |
Total |
|
Third-party interests in consolidated funds |
83.2 |
23.8 |
- |
107.0 |
|
Derivative financial instruments |
1.1 |
- |
- |
1.1 |
|
Current trade and other payables |
56.1 |
- |
- |
56.1 |
|
|
140.4 |
23.8 |
- |
164.2 |
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market interest rates.
The principal interest rate risk is the risk that the Group will sustain a reduction in interest income through adverse movements in interest rates. This relates to deposits with banks and liquidity funds held in the ordinary course of business. The Group has a cash management policy which monitors cash levels and returns within set parameters on a continuing basis.
Bank and similar deposits held at year end are shown on the consolidated balance sheet as cash and cash equivalents. The effective interest earned on bank and similar deposits during the year is given in the table below:
Effective interest rates applicable to bank deposits
|
|
2020 |
2019 |
|
Deposits with banks and liquidity funds |
1.31 |
1.69 |
Deposits with banks and liquidity funds are repriced at intervals of less than one year.
At 30 June 2020, if interest rates over the year had been 50 basis points higher/lower with all other variables held constant, profit before tax for the year would have been £2.4 million higher/lower (FY2018/19: £2.3 million higher/lower), mainly as a result of higher/lower interest on cash balances. An assumption that the fair value of assets and liabilities will not be affected by a change in interest rates was used in the model to calculate the effect on profit before tax.
In addition, the Group is indirectly exposed to interest rate risk where the Group holds seed capital investments in funds that invest in debt securities.
Group
Foreign exchange risk
Foreign exchange risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates.
The Group's revenue is almost entirely denominated in US dollars, while the majority of the Group's costs are denominated in Sterling. Consequently, the Group has an exposure to movements in the GBP:USD exchange rate. In addition, the Group operates globally, which means that it may enter into contracts and other arrangements denominated in local currencies in various countries. The Group also holds a number of seed capital investments denominated mainly in US dollars, Colombian pesos and Indonesian rupiah.
The Group's policy is to hedge a proportion of the Group's revenue by using a combination of forward foreign exchange contracts and options for a period of up to two years forward. The Group also sells US dollars at spot rates when opportunities arise.
The table below shows the Group's sensitivity to a 1% exchange movement in the US dollar, Colombian peso, Indonesian rupiah and the Euro, net of hedging activities.
|
|
2020 |
2019 |
||
|
Foreign currency sensitivity test |
Impact on profit |
Impact on equity |
Impact on profit |
Impact on equity |
|
US dollar +/- 1% |
1.3 |
5.3 |
0.8 |
4.4 |
|
Colombian peso +/- 1% |
0.1 |
0.1 |
0.1 |
0.1 |
|
Indonesian rupiah +/- 1% |
- |
0.1 |
- |
- |
|
Euro +/- 1% |
0.1 |
0.1 |
0.1 |
0.1 |
Price risk
Price risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of market changes.
Seed capital
The Group is exposed to the risk of changes in market prices in respect of seed capital investments. Such price risk is borne by the Group directly through interests in financial assets measured at fair value or indirectly either through line-by-line consolidation of underlying financial performance and positions held in certain funds or potential impairments when fair values less costs to sell of seed investments held for sale are less than carrying amounts. Details of seed capital investments held are given in note 20.
The Group has well-defined procedures governing the appraisal, approval and monitoring of seed capital investments.
At 30 June 2020, a 5% movement in the fair value of these investments would have a £11.9 million (FY2018/19: £13.9 million) impact on net assets and profit before tax.
Management and performance fees
The Group is also indirectly exposed to price risk in connection with the Group's management fees, which are based on a percentage of value of AuM, and fees based on performance. Movements in market prices, exchange and interest rates could cause the AuM to fluctuate, which in turn could affect fees earned. Performance fee revenues could also be reduced depending upon market conditions.
Management and performance fees are diversified across a range of investment themes and are not measurably correlated to any single market index in Emerging Markets. In addition, the policy of having funds with year ends staged throughout the financial year has meant that in periods of steep market decline, some performance fees have still been recorded. The profitability impact is likely to be less than this, as cost mitigation actions would apply, including the reduction of the variable compensation paid to employees.
Using the year end AuM level of US$83.6 billion and applying the year's average net management fee rate of 45bps, a 5% movement in AuM would have a US$18.7 million impact, equivalent to £15.2 million using year end exchange rate of 1.2356, on management fee revenues (FY2018/19: using year end AuM level of US$91.8 billion and applying the year's average net management fee rate of 48bps, a 5% movement in AuM would have a US$21.8 million impact, equivalent to £17.1 million using year end exchange rate of 1.2727, on management fee revenues).
Hedging activities
The Group uses forward and option contracts to hedge its exposure to foreign currency risk. These hedges, which have been assessed as effective cash flow hedges as at 30 June 2020, protect a proportion of the Group's revenue cash flows from foreign exchange movements. The cumulative fair value of the outstanding foreign exchange hedges liability at 30 June 2020 was £1.7 million (30 June 2019: £0.7 million foreign exchange hedges asset) and is included within the Group's derivative financial instrument liabilities.
The notional and fair values of foreign exchange hedging instruments were as follows:
|
|
2020 |
2019 |
||
|
|
Notional amount |
Fair value assets/ |
Notional amount |
Fair value assets/ |
|
Cash flow hedges |
|
|
|
|
|
Foreign exchange nil-cost option collars |
120.0 |
(1.7) |
160.0 |
(0.7) |
|
|
120.0 |
(1.7) |
160.0 |
(0.7) |
The maturity profile of the Group's outstanding hedges is shown below.
|
Notional amount of option collars maturing: |
2020 |
2019 |
|
Within 6 months |
60.0 |
60.0 |
|
Between 6 and 12 months |
50.0 |
60.0 |
|
Later than 12 months |
10.0 |
40.0 |
|
|
120.0 |
160.0 |
When hedges are assessed as effective, intrinsic value gains and losses are initially recognised in other comprehensive income and later reclassified to comprehensive income as the corresponding hedged cash flows crystallise. Time value in relation to the Group's hedges is excluded from being part of the hedging item and, as a result, the net unrealised loss related to the time value of the hedges is recognised in the consolidated statement of comprehensive income for the year.
An intrinsic loss of £0.1 million (FY2018/19: £nil) on the Group's hedges has been recognised through other comprehensive
income and £0.1 million intrinsic value gain (FY2018/19: £0.9 million intrinsic value gain) was reclassified from equity to the statement of comprehensive income in the year.
Included within the net realised and unrealised hedging gain of £1.5 million (note 7) recognised at 30 June 2020 (£5.1 million gain at 30 June 2019) are:
- a £0.9 million loss in respect of foreign exchange hedges covering net management fee income for the financial year ending 30 June 2020 (FY2018/19: £0.3 million gain in respect of foreign exchange hedges covering net management fee income for the financial year ended 30 June 2019); and
- a £2.4 million gain in respect of crystallised foreign exchange contracts (FY2018/19: £4.8 million gain).
Company
The risk management processes of the Company, including those relating to the specific risk exposures covered below, are aligned with those of the Group as a whole unless stated otherwise.
In addition, the risk definitions that apply to the Group are also relevant for the Company.
Credit risk
The Company's maximum exposure to credit risk is represented by the carrying value of its financial assets. The table below lists financial assets subject to credit risk by credit rating:
|
|
|
2020 |
2019 |
|
Cash and cash equivalents |
|
91.8 |
150.3 |
|
Trade and other receivables |
|
518.2 |
495.0 |
|
Total |
|
610.0 |
645.3 |
The Company's cash and cash equivalents comprise short-term deposits held with banks and liquidity funds which have credit ratings ranging from A to AAA- as at 30 June 2020 (30 June 2019: A+ to AAA).
All trade and other receivables are considered to be fully recoverable and none were overdue at year end (30 June 2019: none).
Liquidity risk
The contractual undiscounted cash flows relating to the Company's financial liabilities all fall due within one year.
Details on other commitments are provided in note 29.
Company
Interest rate risk
The principal interest rate risk for the Company is that it could sustain a reduction in interest revenue from bank deposits held in the ordinary course of business through adverse movements in interest rates.
Bank and similar deposits held at year end are shown on the Company's balance sheet as cash and cash equivalents. The effective interest earned on bank and similar deposits during the year is given in the table below:
Effective interest rates applicable to bank deposits
|
|
2020 |
2019 |
|
Deposits with banks and liquidity funds |
0.66 |
0.84 |
Deposits with banks and liquidity funds are repriced at intervals of less than one year.
At 30 June 2020, if interest rates over the year had been 50 basis points higher/lower with all other variables held constant, post-tax profit for the year would have been £0.6 million higher/lower (FY2018/19: £0.8 million higher/lower), mainly as a result of higher/lower interest on cash balances. An assumption that the fair value of assets and liabilities will not be affected by a change in interest rates was used in the model to calculate the effect on post-tax profits.
Foreign exchange risk
The Company is exposed primarily to foreign exchange risk in respect of US dollar cash balances and US dollar-denominated intercompany balances. However, such risk is not hedged by the Company.
At 30 June 2020, if the US dollar had strengthened/weakened by 1% against Sterling with all other variables held constant, profit before tax for the year would have increased/decreased by £4.8 million (FY2018/19: increased/decreased by £4.9 million).
22) Share capital
Authorised share capital
|
Group and Company |
2020 |
2020 |
2019 |
2019 |
|
Ordinary shares of 0.01p each |
900,000,000 |
90 |
900,000,000 |
90 |
Issued share capital - allotted and fully paid
|
Group and Company |
2020 |
2020 |
2019 |
2019 |
|
Ordinary shares of 0.01p each |
712,740,804 |
71 |
712,740,804 |
71 |
All the above ordinary shares represent equity of the Company and rank pari passu in respect of participation and voting rights.
At 30 June 2020, there were equity-settled share awards issued under the Omnibus Plan totalling 43,516,936 (30 June 2019: 40,668,934) shares that have release dates ranging from September 2020 to September 2024. Further details are provided in note 10.
23) Own shares
The Trustees of The Ashmore 2004 Employee Benefit Trust (EBT) acquire and hold shares in Ashmore Group plc with a view to facilitating the vesting of share awards. As at 30 June 2020, the EBT owned 56,477,466 (30 June 2019: 40,355,103) ordinary shares of 0.01p with a nominal value of £5,648 (30 June 2019: £4,036) and shareholders' funds are reduced by £192.7 million (30 June 2019: £119.1 million) in this respect. The EBT is periodically funded by the Company for these purposes.
24) Trade and other payables
|
|
Group |
Group |
Company |
Company |
|
Current |
|
|
|
|
|
Trade payables |
20.1 |
22.1 |
2.5 |
1.6 |
|
Accruals and provisions |
30.6 |
34.0 |
20.4 |
29.3 |
|
Amounts due to subsidiaries |
- |
- |
32.5 |
7.3 |
|
Total trade and other payables |
50.7 |
56.1 |
55.4 |
38.2 |
25) Interests in subsidiaries
Operating subsidiaries held by the Company
There were no movements in investments in subsidiaries held by the Company during the year.
|
Company |
2020 |
2019 |
|
Cost |
|
|
|
At 30 June 2020 and 2019 |
19.9 |
19.9 |
In the opinion of the Directors, the following subsidiary undertakings principally affected the Group's results or financial position at 30 June 2020. A full list of the Group's subsidiaries and all related undertakings is disclosed in note 33.
|
Name |
Country of incorporation/ formation and principal place of operation |
% of equity shares held by the Group |
|
Ashmore Investments (UK) Limited |
England |
100.00 |
|
Ashmore Investment Management Limited |
England |
100.00 |
|
Ashmore Investment Advisors Limited |
England |
100.00 |
|
Ashmore Management Company Colombia SAS |
Colombia |
61.38 |
|
Ashmore CAF-AM Management Company SAS |
Colombia |
53.66 |
|
Ashmore Avenida (Real Estate) Investments LLP |
Colombia |
56.00 |
|
Ashmore Management Company Limited |
Guernsey |
100.00 |
|
PT Ashmore Asset Management Indonesia Tbk |
Indonesia |
60.04 |
|
Ashmore Investment Management (Ireland) Limited |
Ireland |
100.00 |
|
Ashmore Japan Co. Limited |
Japan |
100.00 |
|
AA Development Capital Investment Managers (Mauritius) LLC |
Mauritius |
55.00 |
|
Ashmore Investments (Holdings) Limited |
Mauritius |
100.00 |
|
Ashmore Investments Saudi Arabia |
Saudi Arabia |
100.00 |
|
Ashmore Investment Management (Singapore) Pte. Ltd. |
Singapore |
100.00 |
|
Ashmore Investment Management (US) Corporation |
USA |
100.00 |
|
Ashmore Investment Advisors (US) Corporation |
USA |
100.00 |
Consolidated funds
The Group consolidated the following 12 investment funds as at 30 June 2020 over which the Group is deemed to have control:
|
Name |
Type of fund |
Country of incorporation/ principal place of operation |
% of net |
|
Ashmore Special Opportunities Fund LP |
Alternatives |
Guernsey |
50.00 |
|
Ashmore Emerging Markets Debt and Currency Fund Limited |
Blended debt |
Guernsey |
89.60 |
|
Ashmore SICAV Emerging Markets China Bond Fund |
Local currency |
Luxembourg |
100.00 |
|
Ashmore SICAV Emerging Markets Equity Fund |
Equity |
Luxembourg |
48.86 |
|
Ashmore SICAV Emerging Markets IG Total Return Fund |
Blended debt |
Luxembourg |
80.10 |
|
Ashmore SICAV Emerging Markets Indonesian Equity Fund |
Equity |
Luxembourg |
100.00 |
|
Ashmore SICAV Emerging Markets Multi-Asset Fund |
Multi-asset |
Luxembourg |
54.58 |
|
Ashmore SICAV Emerging Markets Total Return ESG Fund |
Blended debt |
Luxembourg |
100.00 |
|
Ashmore SICAV Emerging Markets Global Small-Cap Equity Fund |
Equity |
Luxembourg |
45.47 |
|
Ashmore SICAV Emerging Markets Volatility-Managed Local Currency Bond Fund |
Local currency |
Luxembourg |
100.00 |
|
Ashmore Saudi Equity Fund |
Equity |
Saudi Arabia |
100.00 |
|
Ashmore Emerging Markets Equity Fund |
Equity |
USA |
42.20 |
26) Interests in associates and joint ventures
The Group held interests in the following associates as at 30 June 2020 that are unlisted:
|
Name |
Type |
Nature of business |
Country of incorporation/ |
% of equity shares held by the Group |
|
Ashmore Investment Management India LLP |
Associate |
Investment management |
India |
30.00% |
|
Taiping Fund Management Company |
Associate |
Investment management |
China |
8.50% |
During the year, the Group disposed of its associate and joint interests in Everbright Ashmore, VTB-Ashmore Capital Holdings Limited and Mesa Capital Advisors LLC for total proceeds of £1.2 million and has recognised a gain on disposal of £0.1 million. The movement in the carrying value of investments in associates and joint ventures for the year is provided below:
|
Associates and joint ventures |
2020 |
2019 |
|
At the beginning of the year |
1.8 |
1.7 |
|
Additions/(disposals) |
(1.1) |
0.4 |
|
Share of loss |
(0.2) |
(0.3) |
|
Foreign exchange revaluation |
0.1 |
- |
|
At the end of the year |
0.6 |
1.8 |
The summarised aggregate financial information is shown below.
|
Associates and joint ventures |
2020 |
2019 |
|
Total assets |
24.1 |
23.7 |
|
Total liabilities |
(17.9) |
(9.1) |
|
Net assets |
6.2 |
14.6 |
|
Group's share of net assets |
0.6 |
2.1 |
|
Revenue for the year |
8.9 |
9.2 |
|
Loss for the year |
(2.3) |
(1.3) |
|
Group's share of loss for the year |
(0.2) |
(0.3) |
The carrying value of the investments in associates represents the cost of acquisition subsequently adjusted for share of profit or loss and other comprehensive income or loss. No permanent impairment is believed to exist relating to the associates as at 30 June 2020. The Group had no undrawn capital commitments (30 June 2019: £nil) to investment funds managed by the associates.
27) Interests in structured entities
The Group has interests in structured entities as a result of the management of assets on behalf of its clients. Where the Group holds a direct interest in a closed-ended fund, private equity fund or open-ended pooled fund such as a SICAV, the interest is accounted for either as a consolidated structured entity or as a financial asset, depending on whether the Group has control over the fund or not.
The Group's interest in structured entities is reflected in the Group's AuM. The Group is exposed to movements in AuM of structured entities through the potential loss of fee income as a result of client withdrawals. Outflows from funds are dependent on market sentiment, asset performance and investor considerations. Further information on these risks can be found in the Business review.
Considering the potential for changes in AuM of structured entities, management has determined that the Group's unconsolidated structured entities include segregated mandates and pooled funds vehicles. Disclosure of the Group's exposure to unconsolidated structured entities has been made on this basis.
The reconciliation of AuM reported by the Group within unconsolidated structured entities is shown below.
|
|
Total AuM |
Less: |
AuM within |
|
30 June 2019 |
91.8 |
0.4 |
91.4 |
|
30 June 2020 |
83.6 |
0.3 |
83.3 |
Included in the Group's consolidated management fees of £330.0 million (FY2018/19: £307.6 million) are management fees amounting to £328.3 million (FY2018/19: £305.1 million) earned from unconsolidated structured entities.
The table below shows the carrying values of the Group's interests in unconsolidated structured entities, recognised in the Group balance sheet, which are equal to the Group's maximum exposure to loss from those interests.
|
|
2020 |
2019 |
|
Management fees receivable |
55.7 |
46.4 |
|
Trade and other receivables |
26.6 |
1.7 |
|
Seed capital investments * |
78.2 |
92.3 |
|
Total exposure |
160.5 |
140.4 |
* Comprise held for sale investments, financial assets measured at fair value and non-current financial assets measured at fair value (refer to note 20).
The main risk the Group faces from its beneficial interests in unconsolidated structured entities arises from a potential decrease in the fair value of seed capital investments. The Group's beneficial interests in seed capital investments are disclosed in note 20. Note 21 includes further information on the Group's exposure to market risk arising from seed capital investments.
28) Related party transactions
Related parties of the Group include key management personnel, close family members of key management personnel, subsidiaries, associates, joint ventures, Ashmore funds, the EBT and the Ashmore Foundation.
Key management personnel - Group and Company
The compensation paid to or payable to key management personnel is shown below:
|
|
2020 |
2019 |
|
Short-term benefits |
0.8 |
1.7 |
|
Defined contribution pension costs |
- |
- |
|
Share-based payment benefits |
0.4 |
1.6 |
|
|
1.2 |
3.3 |
Short-term benefits include salary and fees, benefits and cash bonus.
Share-based payment benefits represent the fair value charge to the statement of comprehensive income of current year share awards.
During the year, there were no other transactions entered into with key management personnel (FY2018/19: none). Aggregate key management personnel interests in consolidated funds at 30 June 2020 were £33.9 million (30 June 2019: £44.6 million).
Transactions with subsidiaries - Company
Details of transactions between the Company and its subsidiaries are shown below:
|
|
2020 |
2019 |
|
Transactions during the year |
|
|
|
Management fees |
78.4 |
77.1 |
|
Net dividends |
122.0 |
174.4 |
|
Loans repaid by subsidiaries |
23.3 |
8.1 |
Amounts receivable or payable to subsidiaries are disclosed in notes 17 and 24 respectively.
Transactions with Ashmore funds - Group
During the year, the Group received £174.9 million of gross management fees and performance fees (FY2018/19: £158.9 million) from the 109 funds (FY2018/19: 109 funds) it manages and which are classified as related parties. As at 30 June 2020, the Group had receivables due from funds of £35.0 million (30 June 2019: £6.7 million) that are classified as related parties.
Transactions with the EBT - Group and Company
The EBT has been provided with a loan facility to allow it to acquire Ashmore shares in order to satisfy outstanding unvested share awards. The EBT is included within the results of the Group and the Company. As at 30 June 2020, the loan outstanding was £167.0 million (30 June 2019: £106.3 million).
Transactions with the Ashmore Foundation - Group and Company
The Ashmore Foundation is a related party to the Group. The Foundation was set up to provide financial grants to worthwhile causes within the Emerging Markets countries in which Ashmore invests and/or operates with a view to giving back to the countries and communities. The Group donated £0.1 million to the Foundation during the year (FY2018/19: £0.1 million).
29) Commitments
The Group has undrawn investment commitments relating to seed capital investments as follows:
|
Group |
2020 |
2019 |
|
|
|
|
|
Ashmore Andean Fund II, LP |
0.3 |
0.5 |
|
Ashmore Avenida Colombia Real Estate Fund I (Cayman) LP |
0.1 |
0.3 |
|
Ashmore I - CAF Colombian Infrastructure Senior Debt Fund |
11.6 |
12.7 |
|
Ashmore Special Opportunities Fund LP |
8.0 |
7.7 |
|
Total undrawn investment commitments |
20.0 |
21.2 |
Company
The Company has undrawn loan commitments to other Group entities totalling £297.8 million (30 June 2019: £276.6 million) to support their investment activities but has no investment commitments of its own (30 June 2019: none).
30) Non-controlling interests
In January 2020 the Group listed PT Ashmore Asset Management Indonesia Tbk (Ashmore Indonesia) on the Jakarta Stock Exchange through an initial public offering (IPO) and issued 10% of the subsidiary's shares to the public. No shares were sold by existing shareholders and this diluted the Group's interest by 6.6% to 60%. Total proceeds of £11.7m were received on the new issue of shares and transaction costs of £0.4m were paid in relation to the issue of the shares. As a result of this transaction, the equity attributable to owners decreased by £0.4 million and non-controlling interests increased by £11.7 million. The IPO has raised Ashmore Indonesia's profile in the region and diversified its shareholder register.
The Group's material NCI as at 30 June 2020 were held in two subsidiaries, Ashmore Indonesia and Ashmore Avenida (Real Estate) Investments LLP (Ashmore Avenida). Set out below is summarised financial information for the two subsidiaries and the amounts disclosed are before intercompany eliminations.
|
|
40% NCI interest |
|
44% NCI interest |
||
|
|
Ashmore Indonesia |
|
Ashmore Avenida |
||
|
Summarised balance sheet |
2020 |
2019 |
|
2020 |
2019 |
|
Total assets |
22.0 |
7.8 |
|
6.6 |
7.0 |
|
Total liabilities |
(5.0) |
(5.3) |
|
(1.2) |
(0.5) |
|
Net assets |
17.0 |
2.5 |
|
5.4 |
6.5 |
|
Accumulated NCI |
13.4 |
0.4 |
|
8.1 |
9.0 |
|
|
|
|
|
|
|
|
Summarised statement of comprehensive income |
|
|
|
|
|
|
Net revenue |
9.7 |
10.3 |
|
3.7 |
4.5 |
|
Profit for the period |
5.1 |
4.6 |
|
0.1 |
1.4 |
|
Other comprehensive income |
0.4 |
0.2 |
|
0.1 |
0.2 |
|
Total comprehensive income |
5.5 |
4.8 |
|
0.2 |
1.6 |
|
Profit allocated to NCI |
1.9 |
1.5 |
|
- |
0.5 |
|
Dividends paid to NCI |
0.7 |
1.5 |
|
0.9 |
0.5 |
|
|
|
|
|
|
|
|
Summarised cash flows |
|
|
|
|
|
|
Cash flows from operating activities |
3.8 |
6.0 |
|
0.4 |
0.7 |
|
Cash flows from investing activities |
0.5 |
0.2 |
|
0.9 |
0.2 |
|
Cash flows from financing activities |
8.9 |
(4.6) |
|
(1.5) |
(0.5) |
|
Net increase/(decrease) in cash and cash equivalents |
13.2 |
1.6 |
|
(0.2) |
0.4 |
31) Significant accounting estimates and judgements
The preparation of the financial statements in conformity with IFRS requires the use of certain accounting estimates, and management to exercise its judgement in the process of applying the Group's accounting policies. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year relate to the valuation of unquoted investment securities using unobservable inputs.
Valuation of unquoted investments
In determining the fair value of seed capital investments, the Group makes estimates to determine the inputs used in valuation techniques. The degree of estimation involved depends on the individual financial instrument and is reflected in the fair value hierarchy. The fair value hierarchy also reflects the extent of judgements used in the valuation. Judgement may include determining the accounting classification, the appropriate valuation approach to use as well as determining appropriate assumptions. For level 3 investments, the judgement applied by the Group gives rise to an estimate of fair value.
As at 30 June 2020, approximately 7% of the Group's total assets by value are level 3 investments, whose fair value has been estimated using valuation techniques incorporating inputs that are not based on observable market data. The Group's level 3 investments comprise unquoted securities held in consolidated funds and interests in unconsolidated funds. The securities may include all asset types but are frequently special situations investments, typically incorporating distressed, illiquid or private investments. The methodology and models used to determine fair value are created in accordance with International Private Equity and Venture Capital Valuation Guidelines. Due to the high level of judgement involved, the Group has a separate Pricing Methodology and Valuation Committee (PMVC) to review the valuation methodologies, inputs and assumptions used to value individual investments. Smaller investments may be valued directly by the PMVC but material investments are valued by an independent third-party valuation specialist. Such valuations are subject to review and approval by the PMVC.
Valuation techniques used include the market approach, the income approach or the net assets approach depending on the availability of reliable information. The market approach consists of using comparable transactions and applying either EBITDA (earnings before interest, tax, depreciation and amortisation) multiples or market multiples (based on comparable public company information). The use of the income approach consists of using the net present value derived from discounting estimated future cash flows using the weighted average cost of capital, adjusted as deemed appropriate for liquidity, credit, market and other risk factors. The net assets approach is based on the net asset value (NAV) for the level 3 fund investments determined as at year end.
The significant unobservable inputs used in valuation techniques are EBITDA and market multiples for the market approach, discount rate for the income approach and NAV for the net assets approach. A marketability adjustment is applied for certain level 3 investment securities to reflect illiquidity and/or non-transferability that could result from offering for sale at one time the Group's entire holdings of a particular financial instrument. The valuation of these investments is considered a significant source of estimation uncertainty as in aggregate the range of possible outcomes in respect to the unobservable inputs could have a material impact on the valuation. Further details on the valuation methodologies applied by the Group in the valuation of level 3 investments as at 30 June 2020 are provided in note 19, including details of the significant unobservable inputs and the associated sensitivities to changes in unobservable inputs to a reasonable alternative.
32) Post-balance sheet events
There are no post-balance sheet events that require adjustment or disclosure in the Group consolidated financial statements.
33) Subsidiaries and related undertakings
The following is a full list of the Ashmore Group plc subsidiaries and related undertakings as at 30 June 2020, along with the registered address and the percentage of equity owned by the Group. Related undertakings comprise significant holdings in associated undertakings, joint ventures and Ashmore sponsored public funds in which the Group owns greater than 20% interest.
|
Name |
Classification |
% voting interest |
Registered address and place of incorporation |
|
||
|
Ashmore Investments (UK) Limited |
Subsidiary |
100.00 |
61 Aldwych, London WC2B 4AE United Kingdom |
|
||
|
Ashmore Investment Management Limited |
Subsidiary |
100.00 |
|
|||
|
Ashmore Investment Advisors Limited |
Subsidiary |
100.00 |
|
|||
|
Aldwych Administration Services Limited |
Subsidiary |
100.00 |
|
|||
|
Ashmore Asset Management Limited |
Subsidiary |
100.00 |
|
|||
|
Ashmore Avenida (Real Estate) Investments LLP |
Subsidiary |
56.00 |
|
|||
|
Ashmore Investment Management (Ireland) Limited |
Subsidiary |
100.00 |
32 Molesworth Street, Dublin 2, D02 Y512 |
|
||
|
Ashmore Investment Management (US) Corporation |
Subsidiary |
100.00 |
475 Fifth Avenue, 15th Floor |
|
||
|
Ashmore Investment Advisors (US) Corporation |
Subsidiary |
100.00 |
|
|||
|
Ashmore Equities Investment Management (US) LLC (in liquidation) |
Subsidiary |
100.00 |
|
|||
|
Avenida Partners LLC |
Subsidiary |
100.00 |
|
|||
|
Avenida CREF I Manager Cayman LLC |
Subsidiary |
100.00 |
|
|||
|
Avenida CREF I Manager LLC |
Subsidiary |
100.00 |
|
|||
|
Avenida A2 Partners LLC |
Subsidiary |
100.00 |
|
|||
|
Avenida Colombia Member LLC |
Subsidiary |
83.30 |
|
|||
|
Avenida CREF II Partners LLC |
Subsidiary |
100.00 |
|
|||
|
Avenida CREF II GP LLC |
Subsidiary |
100.00 |
|
|||
|
MCA Partners LLC |
Subsidiary |
100.00 |
|
|||
|
Avenida REF Holding SA |
Subsidiary |
100.00 |
Yamandu 1321, 11500 |
|
||
|
Avenida CREF II Manager SRL |
Subsidiary |
99.00 |
|
|||
|
Avenida CREF Partners SRL |
Subsidiary |
99.00 |
|
|||
|
Avenida CREF II GP SRL |
Subsidiary |
85.00 |
|
|||
|
Ashmore Investment Management (Singapore) Pte. Ltd. |
Subsidiary |
100.00 |
1 George Street, #15-04, Singapore 049145 |
|
||
|
PT Ashmore Asset Management Indonesia Tbk |
Subsidiary |
60.04 |
Pacific Century Place, 18th Floor, SCBD Lot 10, Jl. Jenderal. Sudirman Kav.52-53 Jakarta 12190, Indonesia |
|
||
|
Ashmore Management Company Colombia SAS |
Subsidiary |
61.38 |
Carrera 7 No. 75 -66, Office 701 & 702 Bogotá, Colombia |
|
||
|
Ashmore-CAF-AM Management Company SAS |
Subsidiary |
53.66 |
|
|||
|
Ashmore Holdings Colombia S.A.S. |
Subsidiary |
100.00 |
|
|||
|
Ashmore Investment Advisors Colombia S.A. Sociedad Fiduciaria |
Subsidiary |
100.00 |
|
|||
|
Ashmore Management Backup Company S.A.S |
Subsidiary |
100.00 |
|
|||
|
Avenida Colombia Management Company SAS |
Subsidiary |
100.00 |
|
|||
|
Ashmore Peru SAC |
Subsidiary |
99.00 |
Av. de la Floresta No. 497, Quinto Piso, San Borja, Lima, Perú |
|
||
|
Ashmore Japan Co. Limited |
Subsidiary |
100.00 |
11F, Shin Marunouchi Building 1-5-1 Marunouchi Chiyoda-ku Tokyo Japan 100-6511 |
|
||
|
Ashmore Investments (Colombia) SL |
Subsidiary |
100.00 |
c/ Hermosilla 11, 4ºA, 28001 Madrid, Spain |
|
||
|
Ashmore Management (DIFC ) Limited |
Subsidiary |
100.00 |
Office 105, Gate Village 03, Level 1 Dubai International Financial Centre Dubai, UAE |
|
||
|
Ashmore Investment Advisors (India) Private Limited (in liquidation) |
Subsidiary |
99.82 |
507A Kakad Chambers, Dr Annie Besant Road, Worli Mumbai 400 018, India |
|
||
|
Ashmore Investment Saudi Arabia |
Subsidiary |
100.00 |
3rd Floor Tower B, Olaya Towers |
|||
|
Ashmore Saudi Equity Fund |
Consolidated fund |
100.00 |
||||
|
Ashmore AISA Cayman Limited |
Subsidiary |
100.00 |
Ugland House, Grand Cayman, KY1-1104, Cayman Islands |
|||
|
AA Development Capital Investment Managers (Mauritius) LLC |
Subsidiary |
55.00 |
Les Cascades Building |
|||
|
Ashmore Investments (Holdings) Limited |
Subsidiary |
100.00 |
||||
|
Ashmore EM Special Situation Opportunities Fund (GP) Limited |
Subsidiary |
100.00 |
Trafalgar Court |
|||
|
Ashmore Management Company Limited |
Subsidiary |
100.00 |
||||
|
Ashmore Global Special Situations Fund 3 (GP) Limited |
Subsidiary |
100.00 |
||||
|
Ashmore Global Special Situations Fund 4 (GP) Limited |
Subsidiary |
100.00 |
||||
|
Ashmore Global Special Situations Fund 5 (GP) Limited |
Subsidiary |
100.00 |
||||
|
Ashmore Special Opportunities (GP) Limited |
Subsidiary |
100.00 |
||||
|
Ashmore Special Opportunities Fund LP |
Consolidated fund |
50.00 |
||||
|
Ashmore Emerging Markets Debt and Currency Fund Limited |
Consolidated fund |
89.60 |
||||
|
Ashmore SICAV Emerging Markets Equity ESG Fund |
HFS investment |
100.00 |
10, rue du Chateau d'Eau |
|||
|
Ashmore SICAV Emerging Markets IG Short Duration Fund |
HFS investment |
65.46 |
||||
|
Ashmore SICAV Emerging Markets China Bond Fund |
Consolidated fund |
100.00 |
||||
|
Ashmore SICAV Emerging Markets Equity Fund |
Consolidated fund |
48.86 |
||||
|
Ashmore SICAV Emerging Markets Global Small-Cap Equity Fund |
Consolidated fund |
45.47 |
||||
|
Ashmore SICAV Emerging Markets IG Total Return Fund |
Consolidated fund |
80.10 |
||||
|
Ashmore SICAV Emerging Markets Total Return ESG Fund |
Consolidated fund |
100.00 |
||||
|
Ashmore SICAV Emerging Markets Indonesian Equity Fund |
Consolidated fund |
100.00 |
||||
|
Ashmore SICAV Emerging Markets Multi-Asset Fund |
Consolidated fund |
54.58 |
||||
|
Ashmore SICAV Emerging Markets Volatility-Managed LCBF |
Consolidated fund |
100.00 |
||||
|
Ashmore SICAV Emerging Markets Absolute Return Debt Fund |
Significant holding |
30.44 |
||||
|
Ashmore Emerging Markets Active Equity Feeder Fund |
HFS investment |
100.00 |
50 South LaSalle Street |
|||
|
Ashmore Emerging Markets Equity ESG Fund |
HFS investment |
100.00 |
||||
|
Ashmore Emerging Markets Short Duration Select Fund |
HFS investment |
100.00 |
||||
|
Ashmore Emerging Markets Equity Fund |
Consolidated fund |
42.20 |
||||
|
Ashmore Investment Management India LLP |
Associate |
30.00 |
507A Kakad Chambers, Dr Annie Besant Road Worli, Mumbai 400 018, India |
|||
|
Taiping Fund Management Company |
Associate |
8.50 |
Unit 101, Building No.5, 135 Handan Road, Shanghai, China |
|||
Cautionary statement regarding forward-looking statements
It is possible that this document could or may contain forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could or other words of similar meaning.
Undue reliance should not be placed on any such statements because, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. There are several factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are changes in global, political, economic, business, competitive, market and regulatory forces, future exchange and interest rates, changes in tax rates and future business combinations or dispositions. The Group undertakes no obligation to revise or update any forward-looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise.
Statutory accounts
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