Final Results
Ashmore Group plc
6 September 2019
RESULTS FOR THE YEAR ENDING 30 JUNE 2019
Ashmore Group plc (Ashmore, the Group), the specialist Emerging Markets asset manager, today announces its audited results for the year ending 30 June 2019.
- Assets under management (AuM) increased 24% to US$91.8 billion
- Broad-based net inflows of US$10.7 billion and positive investment performance of US$6.9 billion
- Progress made against strategic growth objectives: intermediary retail AuM increased by 29% and local market platforms developing well
- Strong absolute and relative returns delivered by Ashmore's active investment processes
- 90% AuM outperforming benchmarks over one year, 97% over three and five years
- Business model delivering strong operating and financial performance
- Adjusted net revenue growth of 11% driven by 17% increase in net management fees; performance fees of £2.8 million
- Adjusted EBITDA increased 10% to £201.8 million; margin maintained at 66%
- Seed capital profit of £10.7 million; new investments of £108 million and £78 million successfully recycled
- Profit before tax of £219.9 million, 15% higher than prior year; diluted EPS increased 18% to 25.0p
- Recommended final DPS of 12.10p
- Diverse range of Emerging Markets well-positioned for growth and future returns
- Investable markets growing and diversifying, now 73 emerging countries in the external debt index
- GDP growth premium expanding, inflation largely under control, central banks cutting rates
- Significant value available; Ashmore processes taking advantage of recent opportunities
Commenting on the Group's results, Mark Coombs, Chief Executive Officer, Ashmore Group said:
"Ashmore has delivered strong results for the year on the back of 24% AuM growth and continued investment outperformance. The backdrop for Emerging Markets remains relatively healthy, with economic indicators such as GDP growth and inflation continuing to trend favourably. The main risks relate to the US and the impact that its confrontational trade policy and slowing domestic growth will have on the broader global economy. In this context, the significant diversity across the Emerging Markets asset classes is important and after recent market weakness the valuations available are highly attractive. Ashmore will continue to implement its active investment processes to exploit these opportunities for clients, is well-positioned to continue to capture investors' rising allocations to Emerging Markets and, through its consistent strategy and proven business model, to create value for shareholders."
Analysts briefing
There will be a presentation for analysts at 9.30am on 6 September 2019 at the offices of UBS at 5 Broadgate, London, EC2M 2QS. 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
|
Tom Shippey, Group Finance Director |
+44 (0)20 3077 6191 |
|
Paul Measday, Investor Relations |
+44 (0)20 3077 6278 |
FTI Consulting
|
Neil Doyle |
+44 (0)20 3727 1141 |
|
Laura Ewart |
+44 (0)20 3727 1160 |
Chief Executive's review
Ashmore has delivered a strong performance for the financial year and made significant progress against the growth objectives of its focused three-phase strategy.
- Investment performance is strong with more than 90% of AuM outperforming benchmarks over one, three and five years.
- Assets under management increased 24%, primarily through net inflows across the range of investment themes, resulting in 17% growth in net management fees.
- Disciplined control of operating costs has delivered 10% growth in adjusted EBITDA and an adjusted EBITDA margin of 66%.
- Profit before tax increased by 15% to £219.9 million and diluted EPS increased by 18% to 25.0 pence.
- The client base is increasingly well diversified, and intermediary retail clients now represent 15% of Group AuM after 29% growth in assets this year. The client flows in the period were broad-based by client type and geography.
- The Group's local asset management platforms continue to develop as planned, including through the acquisition of a real estate business in Colombia.
The year was positive for Emerging Markets as economic and political fundamentals continued to strengthen. While there have been some headwinds, for example the deteriorating US/China trade relationship, thus far these have had only a temporary impact on market sentiment, and therefore prices, but not a major effect on the aggregate Emerging Markets growth picture.
- The Emerging Markets asset classes continued to expand, with 9% growth in the value of bonds outstanding to US$26.5 trillion and equity market capitalisation standing at US$24.5 trillion.
- Index representation improved, with 12% of the fixed income market and 23% of the equity market now included in the major benchmark indices. Important developments include the recognition of five GCC markets in the external debt index and inclusion of China in the Bloomberg Aggregate and FTSE World Government Bond indices, with JP Morgan expected to follow suit in respect of its local currency bonds index.
- Elections in several major economies, such as Brazil, India, Indonesia and South Africa, not only offered alpha generation opportunities, but also produced market-friendly results that support expectations of continued reforms.
- Emerging Markets returns were positive over the 12 months with +1% to +5% for equity markets and +9% to +12% for fixed income indices.
In contrast, the developed world has continued to struggle with political upheaval and lacklustre economic growth as a result of too much debt and a lack of reforms. Market levels have been supported by unorthodox monetary policies, and while central banks are mostly dovish, rates are already low and US$13 trillion of bonds trade at negative yields. This challenging backdrop for Developed Markets further highlights the opportunities in Emerging Markets and places more pressure on investors to address their underweight positions and to increase allocations to the parts of the world that offer higher growth, greater value and better risk-adjusted returns.
Focus on strategic growth opportunities
The investment opportunities across Emerging Markets have increased significantly since Ashmore launched its first fund in 1992, and notwithstanding the very significant developments in these markets over the past few decades, there remain substantial growth opportunities across the Emerging Markets.
In large part, this reflects the still inefficient nature of Emerging Markets, with low index representation, frequent misunderstanding of the relationship between fundamentals and market prices, underweight investor allocations, and outdated notions of the drivers of growth and vulnerabilities across the emerging nations.
Ashmore's ability to exploit these inefficiencies has been proven through market cycles over the past nearly 30 years, by following a consistent specialist and focused approach, and having a deep understanding of the underlying economies, political developments and market liquidity. This investment philosophy has delivered strong relative investment performance over the past one, three and five years across the Group's investment themes.
Overall, good progress was made this year against the Group's strategic growth objectives with positive developments in each of the three phases.
Phase 1
Broad-based AuM growth of 24%, with the majority of institutional net flows generated by existing clients, demonstrates that investors are underweight Emerging Markets and are actively addressing this in pursuit of higher risk-adjusted returns. Global benchmark weights for Emerging Markets will continue to increase from levels that are at least twice the typical investor's target allocation, and so the long-term growth opportunity remains substantial.
Phase 2
Diversification of the Group's client base continues against a backdrop of broad-based global demand. Ashmore has had a greater focus on the US market over the past three years and this has resulted in the Americas now being the largest source of client assets at 26% of AuM compared with 22% in 2016. In absolute terms, AuM has more than doubled over this period to approximately US$23 billion. As the world's largest pool of investable assets, the US will remain a focus for distributing the Group's products.
The Group's retail strategy is also delivering strong growth. In the year, AuM sourced through intermediaries in Asia, Europe and the US increased by 29% to US$12.7 billion or 15% of total AuM, with particular demand for short duration, local currency bonds and blended debt products. Over the past three years, intermediary retail AuM has increased in absolute terms by US$7.8 billion from US$4.9 billion.
Ashmore's seed investments support further product diversification and during the year it made new commitments of £108.3 million in a range of new and existing funds including a low volatility local currency bond fund, a blended debt ESG fund and a China bond fund. The total invested and committed seed capital now stands at nearly £300 million, and Ashmore has recognised profits of approximately £113 million over the life of the programme of which nearly half have been realised. An illustration of the commercial benefits of the actively managed seed capital programme is the well-established short duration strategy, where US$60 million of initial seed investments in 2014 have led to a range of funds now managing US$8 billion for clients in the US, Europe and Asia.
Ashmore acquired a majority stake in a Colombian real estate business during the year, and the focus for the renamed AshmoreAVENIDA is now on expanding the real estate franchise in the Andean region and then more broadly in Emerging Markets.
The real estate acquisition demonstrates Ashmore's desire to increase AuM in the higher margin alternatives theme, providing diversification benefits and managing long-term investments in closed end funds.
Phase 3
An important source of Ashmore's long-term growth is mobilising Emerging Markets capital to invest both domestically and into other Emerging Markets. There was reasonable growth in Emerging Markets-sourced assets in the year with AuM increasing by 14% to nearly US$28 billion and representing 30% of Group AuM. The local asset management platforms represent a significant component of this phase and continue to develop as planned. For example, Indonesia increased its AuM by 20% over the year to US$2.0 billion and in total the local businesses now manage US$5.3 billion.
Operational delivery
Ashmore implements a straightforward business model that is delivering investment performance for clients, raising net new money, controlling operating costs across one global operating platform, deploying the Group's balance sheet selectively and has access to further significant organic growth. This also means it is well positioned to address the challenges facing the broader asset management industry and to continue to deliver value for stakeholders, including clients and shareholders.
Ashmore's active management philosophy has successfully delivered superior investment performance for clients; for example, the Group's main fixed income composites have generated between 150bps and 500bps of gross annualised alpha over three years. This, combined with the low level of indexation across fixed income and equity asset classes, means that the direct threat from passive substitutes is currently not significant. While this may change over the longer term as index representation increases, the allocation opportunity and continued delivery of returns through active management will mitigate the risk.
Ashmore's investment processes and fund structures have consistently had a rigorous focus on market and fund liquidity, an approach that has proven successful through many Emerging Markets cycles including recently in the 2013 to 2016 period. Ashmore's long history and specialist approach to investing in Emerging Markets means it has developed strong trading counterparty relationships, including critically in the key local markets where liquidity is increasingly found.
Brexit
Ashmore established an office in Ireland during the period, and following regulatory approval from the Central Bank of Ireland, this office is now fully operational. This addresses the risk associated with the most severe potential scenario, as it provides the Group with continued access to EU-based clients after the UK has left the EU and in the absence of any equivalence arrangements.
Culture
Ashmore maintains a collaborative, performance-based culture that is consistent with, and supportive of, its specialist focus on active management in Emerging Markets. The Group's long-standing remuneration philosophy ensures a strong alignment of interests between clients, shareholders and employees through market cycles, and results in low levels of employee turnover.
Shareholding
I announced in February 2019 that I have agreed with the Board to reduce my shareholding (currently 37.8%) to a more appropriate level over the medium term by selling up to 4% of Ashmore stock in the market each year. I also confirmed that I am committed as a significant executive shareholder, have no intention of seeking creeping control of Ashmore, wish to remain part of the Company's remuneration scheme like everyone else and will seek to ensure the continued successful development of the shareholder base as Ashmore's business grows.
Outlook
The Emerging Markets rally that began in early 2016 was interrupted briefly in 2018 as broad sentiment reflected specific challenges in Argentina and Turkey, together with a temporarily stronger US dollar. However, the underlying fundamentals - economics, politics and corporate earnings - continue to improve across the majority of Emerging Markets. In the first half of 2019, those positive characteristics reasserted themselves on asset prices and Emerging Markets delivered strong returns. Investors should therefore consider asset price volatility, such as that seen recently, as an opportunity for active management to exploit rather than simply risk.
The main risks to the current market environment centre on the US: the outlook for its economy and its trade policy. Ashmore's base case is for a further gradual slowing of US growth at this late stage of the business cycle, which would maintain downward pressure on the US dollar and support continued flows to Emerging Markets. However, a US recession or, less likely, consistently stronger US growth would affect investor sentiment and potentially change allocation decisions.
The aggressive US trade stance has created uncertainty and is beginning to affect growth, both domestically and in its partners such as China and Europe. While the diversity of Emerging Markets means there will be winners and losers under any given macro scenario, a continued US-led trade war is likely to affect sentiment broadly and result in further episodes of investor risk aversion.
Notwithstanding the positive performance over the past 12 months, the valuations available across Emerging Markets fixed income and equity asset classes are highly attractive in the context of their robust fundamental position and growth outlook. In the developed world, the main investment markets remain supported by central banks and the prospects for further substantial capital gains from these asset classes appear limited. Therefore, capital is likely to continue to flow to Emerging Markets as investors address their underweight positions in markets that offer substantial yield, growth and return opportunities. Ashmore is performing well, its business model continues to deliver, and it is well-positioned to benefit from the ongoing capital flows.
Mark Coombs
Chief Executive Officer
6 September 2019
Market review
Emerging Markets offer highly attractive investment opportunities given a strong fundamental backdrop, significant value across fixed income and equity markets, and long-term support from capital flows as investors address underweight allocations
The outperformance of Emerging Markets asset classes gathered momentum over the past 12 months as some of the market headwinds evident in the first half of calendar 2018 faded. The main fixed income asset classes delivered +9% to +12% over the year, with performance stronger in the second half. There was a similar performance pattern in equities, albeit that returns over the 12-month period were lower at +1% for large cap equities.
Emerging Markets are in good health at the aggregate level, supporting continued outperformance versus Developed Markets and putting the 2018 calendar year in context. In early 2018, sentiment towards Emerging Markets softened and caused an unjustified broad-based weakness in asset prices. In the second half of 2018, and continuing into 2019, the ongoing strength of these fundamentals was recognised by investors and Emerging Markets rallied.
Macro economics
The majority of Emerging Markets countries undertook a significant rebalancing process in the 2013 to 2016 period, which resulted in record low levels of inflation and much improved current accounts. Central banks have re-established foreign exchange reserves and, with relatively high nominal and real interest rates and little inflationary pressure, they have the capacity to provide monetary policy stimulus if required.
This favourable picture is reflected in economic growth expectations. For example, the IMF forecasts an expansion of the Emerging Markets growth premium versus the developed world, from less than 2% in 2018 to more than 3% in 2024. Historically, this growth differential has a high correlation with the performance of currencies and equities. Therefore the outlook for Emerging Markets FX is positive and the valuation of Emerging Markets equities is highly attractive at 12.5x prospective earnings, supporting continued capital flows.
Politics
The past 12 months has seen a number of elections in some of the larger emerging countries such as Brazil, India, Indonesia and South Africa, as well as mid-term elections in the United States. The uncertainty typically associated with election outcomes, and consequent implications for policy, means that markets tend to be more volatile around these events. The focus of Ashmore's investment committees has always been diligent analysis and active management to identify attractive investment opportunities during election periods.
From a fundamental perspective, the quality of governance, the strength and stability of financial and political institutions, and an administration's propensity to reform are important, and can underpin GDP growth expectations. To varying degrees, these factors have been evident in the recent Emerging Markets electoral cycles.
There is a contrast that could be made with Developed Markets, particularly the political response to an economic downturn. The recent response in the developed world was to increase fiscal spending, issue more debt and resist reforms, which may have reduced the severity of the recession but undermined productivity and GDP growth over the longer term. In contrast, Emerging Markets are able to make the required economic adjustments and pursue reforms, which may result in a relatively sharp economic contraction but can lead to stronger and more sustainable economic growth over time.
Development of the asset classes
Ashmore believes that approximately 150 countries can currently be considered 'emerging', of which around half have issued debt and approximately a quarter have investable equity markets. This means that the Emerging Markets asset classes are already highly diversified, but as countries grow and establish capital markets, there will be new issuance to continue the long-term trend.
The external debt asset class has a clear growth trajectory as countries tend to issue offshore in the first instance, until such time as domestic capital markets and local institutional investors can provide sufficient demand for local currency-denominated issuance.
The growth in scale and depth of local currency bond markets is an important development and following median annual growth of 20% over the past two decades, the value of bonds outstanding in the issuer's own currency is now nearly US$22 trillion or 82% of the total Emerging Markets fixed income universe. By itself, this local currency market is larger than the entire Emerging Markets fixed income universe of US$20 trillion just two years ago.
Investor positioning and allocations
The typical developed world investor currently has a target allocation of less than 10% to Emerging Markets, whether in fixed income or equity portfolios. This is a significantly underweight position when the following factors are considered:
- 86% of the world's population resides in emerging nations;
- 59% of world GDP is generated by Emerging Markets;
- Emerging Markets have issued 23% of the world's bonds and account for 35% of equity market capitalisation;
- central banks in emerging countries control 76%, or US$8.7 trillion, of the world's foreign exchange reserves;
- average GDP per capita is US$12,500, a level seen in the developing world 35 years ago; and critically
- global benchmark indices include emerging countries with aggregative weights of between 15% and 20%.
This provides for a substantial longer-term growth opportunity as investors move towards neutral benchmark weights, and particularly considering that those benchmark weights are forecast to rise over time as capital markets in the emerging world continue to grow, deepen and become more accessible.
China is an important example of this trend for higher Emerging Markets index representation. In April 2019, Bloomberg included China in its Aggregate fixed income index and the country is expected to be included in both the FTSE World Government Bond Index (WGBI) and the JP Morgan GBI-EM GD local currency bond index in due course. A realistic estimate of the industry capital flows due to China's inclusion in these bond indices is US$500 billion.
Not only is there a long-term growth opportunity through raising target allocations, but there is also a substantial near-term opportunity that reflects the fact that many investors are currently below their target allocations as a consequence of the following:
- In the 2013 to 2016 period, investors withdrew capital from the Emerging Markets to invest in a US economy that was believed to be set for stronger growth, or to hold sovereign debt in the European market where an absence of growth and inflation implied low interest rates for a long time.
- With the exception of a small number of early movers, investors naturally responded slowly to the recovery in Emerging Markets asset prices in 2016, partly to avoid the risk of a false dawn, but also because the US presidential election created some uncertainty.
- Allocations began to pick up meaningfully in 2017, but the global market volatility of early 2018 caused some investors to pause.
Hence, in 2019, the typical developed world investor has an allocation to Emerging Markets that is still below their target weight. The relative importance of Emerging Markets to the world economy, and the lack of credible value opportunities in the equivalent Developed Markets, means that the outlook for capital flows is positive as a consequence of ongoing reallocation activity and the longer-term increase in target allocations.
Addressing challenges through active management
In an investable universe of more than 70 Emerging Markets countries, it is entirely normal that any given year will see a small number encounter difficulties, whether born of external factors or largely self-inflicted, as has been the case recently with Argentina and Turkey. Unlike 20 to 30 years ago, problems in a small number of emerging countries no longer lead to contagion and crises elsewhere. This reflects the development of stronger domestic institutions, higher quality policy making and, perhaps most importantly, the growth of a broad and diversified local currency asset class that means countries are no longer reliant upon foreign investors who may prove to be fickle.
Nonetheless, specialist active management can identify and deal with the country-specific challenges as they arise. That is not to say that investors need to avoid the 'problem' or 'bad' countries, but it is imperative to undertake research and fully analyse the situation to determine whether the particular challenges have been appropriately priced by markets. If not, then there is an opportunity to deliver alpha, and one that will not be available to a passive index investor.
Value
Against the backdrop of robust and improving fundamentals across Emerging Markets, such as rising GDP growth and falling inflation, and notwithstanding the strong returns delivered since 2016, there continues to be substantial value available in both fixed income and equity markets. For example, real yields in local currency bond markets are above 2%, significantly higher than the low of 1% seen in early 2013, and well in excess of the yield available on equivalent duration US Government bonds; external debt trades 345bps higher than the US market, more than twice the historical low despite the asset class continuing to grow and become more diversified; and equities trade at a significant 32% discount to developed world equity markets' earnings multiples but offer superior growth and return potential.
Mark-to-market price volatility is a source of value in Emerging Markets, and one that can be exploited by specialist active investment managers. Investors should therefore use such market conditions to add to positions that are supported by solid macro-economic or company-specific fundamentals.
In summary, the combination of underweight investor allocations, attractive valuations, and a supportive fundamental backdrop presents a positive outlook for returns in Emerging Markets, and periods of short-term price volatility provide opportunities to be exploited by active management.
Business review
Ashmore delivered a strong financial performance in the year with a 24% increase in AuM, 11% growth in adjusted net revenue and 10% growth in adjusted EBITDA. Diluted EPS increased by 18% and the Group's balance sheet remains liquid and well-capitalised with capital resources of £678.6 million and excess regulatory capital of £557.6 million.
Summary non-GAAP financial performance
The table below reclassifies items relating to seed capital and the translation of non-Sterling balance sheet positions to aid clarity and comprehension of the Group's operating performance, by excluding the mark-to-market volatility of these items, and to provide 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 |
FY2018/19 Reported |
Seed capital- |
Foreign exchange translation |
FY2018/19 Adjusted |
FY2017/18 Adjusted |
|
Management fees net of distribution costs |
294.3 |
- |
- |
294.3 |
250.5 |
|
Performance fees |
2.8 |
- |
- |
2.8 |
21.9 |
|
Other revenue |
5.9 |
- |
- |
5.9 |
4.1 |
|
Foreign exchange |
11.3 |
- |
(6.2) |
5.1 |
1.8 |
|
Net revenue |
314.3 |
- |
(6.2) |
308.1 |
278.3 |
|
Investment securities |
0.5 |
(0.5) |
- |
- |
- |
|
Third-party interests |
3.8 |
(3.8) |
- |
- |
- |
|
Personnel expenses |
(84.2) |
- |
1.4 |
(82.8) |
(73.2) |
|
Other expenses excluding depreciation & amortisation |
(26.8) |
3.3 |
- |
(23.5) |
(21.5) |
|
EBITDA |
207.6 |
(1.0) |
(4.8) |
201.8 |
183.6 |
|
EBITDA margin |
66% |
- |
- |
66% |
66% |
|
Depreciation & amortisation |
(4.8) |
- |
- |
(4.8) |
(5.0) |
|
Operating profit |
202.8 |
(1.0) |
(4.8) |
197.0 |
178.6 |
|
Net finance income/expense |
17.4 |
(9.7) |
- |
7.7 |
4.6 |
|
Associates & joint ventures |
(0.3) |
- |
- |
(0.3) |
(0.4) |
|
Seed capital-related items |
- |
10.7 |
- |
10.7 |
10.1 |
|
Profit before tax excluding FX translation |
219.9 |
- |
(4.8) |
215.1 |
192.9 |
|
Foreign exchange translation |
- |
- |
4.8 |
4.8 |
(1.6) |
|
Profit before tax |
219.9 |
- |
- |
219.9 |
191.3 |
Assets under management
AuM increased 24%, or US$17.9 billion, to US$91.8 billion, driven by net inflows of US$10.7 billion and market performance of US$6.9 billion. Average assets under management increased by 16% to US$80.5 billion (FY2017/18: US$69.2 billion).
Gross subscriptions of US$23.7 billion represent 32% of opening AuM (FY2017/18: US$30.0 billion, 51%). Gross redemptions of US$13.1 billion were unchanged in absolute terms compared with the prior year but reduced to 18% of opening AuM (FY2017/18: 22%), which demonstrates the increasing longevity of the Group's client relationships.
Investment performance added US$6.9 billion to AuM, nearly all of which was delivered in the second half as markets rallied and Ashmore's active investment processes delivered strong absolute and relative performance. The acquisition of a real estate business based in Colombia added US$0.3 billion to AuM in the alternatives theme.
Institutional subscriptions were broadly based across the US, Europe and Asia with pension funds and insurance clients particularly active in all three geographies. The majority of gross and net flows came from clients increasing allocations through existing or new accounts, in many cases by significant amounts. New client wins were concentrated in the local currency, blended debt, equities and corporate debt themes.
There was ongoing strong demand from intermediary retail clients in all three regions and there continues to be distinct product preferences, with short duration and blended debt strategies popular in both the US and Europe. The local currency bond funds also experienced good net flows in the period from European clients.
Redemptions are running at a normal level for this part of the cycle with no particular patterns by client type, geography or investment theme. In absolute terms, the level of redemptions has been stable for the past three years, but this represents a declining proportion of each period's opening assets under management and therefore increased client longevity.
Net flows were broadly spread by institutional client type, and intermediary retail channels delivered US$2.0 billion, or 19% of total net flows for the period.
Investor profile
AuM growth this year was balanced across the institutional and intermediary retail franchises globally, however the Group's increased distribution focus on the US over the past three years has resulted in the Americas becoming the largest source of client AuM.
AuM by investor type
|
|
2019 % |
2018 % |
|
Central banks |
12 |
15 |
|
Sovereign wealth funds |
7 |
8 |
|
Governments |
16 |
15 |
|
Pension plans |
29 |
28 |
|
Corporates/financial institutions |
18 |
14 |
|
Funds/sub-advisers |
2 |
4 |
|
Intermediary retail |
15 |
14 |
|
Foundations/endowments |
1 |
2 |
AuM by investor geography
|
|
2019 % |
2018 % |
|
Americas |
26 |
24 |
|
Europe ex UK |
25 |
24 |
|
UK |
9 |
10 |
|
Middle East and Africa |
17 |
19 |
|
Asia Pacific |
23 |
23 |
Segregated accounts including white-labelled funds represent 66% of AuM (30 June 2018: 68%), the lower proportion being a consequence of the strong intermediary retail flows into mutual funds in the year.
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 / |
AuM |
|
External debt |
14.5 |
1.9 |
4.1 |
(1.7) |
2.4 |
0.3 |
19.1 |
|
Local currency |
17.0 |
1.6 |
4.1 |
(1.8) |
2.3 |
(1.2) |
19.7 |
|
Corporate debt |
9.8 |
0.9 |
8.1 |
(3.3) |
4.8 |
- |
15.5 |
|
Blended debt |
19.7 |
2.2 |
3.6 |
(2.4) |
1.2 |
1.2 |
24.3 |
|
Equities |
4.2 |
0.3 |
1.5 |
(1.9) |
(0.4) |
0.3 |
4.4 |
|
Alternatives |
1.5 |
(0.1) |
0.1 |
(0.2) |
(0.1) |
0.3 |
1.6 |
|
Multi-asset |
1.0 |
0.1 |
0.1 |
(0.1) |
- |
(0.6) |
0.5 |
|
Overlay/liquidity |
6.2 |
- |
2.1 |
(1.6) |
0.5 |
- |
6.7 |
|
Total |
73.9 |
6.9 |
23.7 |
(13.0) |
10.7 |
0.3 |
91.8 |
Ashmore's global mutual fund platforms in Europe and the US experienced strong client demand in the period and AuM increased by 43%. The SICAV range of 30 funds increased AuM by 38% to US$19.6 billion at 30 June 2019 (30 June 2018: US$14.2 billion in 26 funds), with growth driven by short duration, blended debt and local currency bonds strategies. The US 40-Act range of eight funds increased AuM by 74% to US$3.7 billion (30 June 2018: US$2.1 billion in eight funds), with growth delivered in particular through the short duration and blended debt funds.
Assets sourced through intermediary retail channels increased from 14% to 15% of the Group's AuM with institutional clients now representing 85% of AuM.
In total, 30% of the Group's AuM has been sourced from clients domiciled in Emerging Markets.
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
|
|
2019 % |
2018 % |
|
External debt |
39 |
38 |
|
Local currency |
29 |
29 |
|
Corporate debt |
17 |
15 |
|
Equities |
5 |
7 |
|
Alternatives |
2 |
2 |
|
Overlay/liquidity |
8 |
9 |
The Group's AuM by geography of investment remains well diversified with 41% invested in Latin America, 21% in Asia Pacific, 16% in the Middle East and Africa, and 21% in Eastern Europe.
Financial review
Revenues
Net revenue increased by 14% to £314.3 million (FY2017/18: £276.3 million) driven by 17% growth in net management fee income and higher foreign exchange translation revenues partially offset by lower performance fees compared with the prior year. Adjusted net revenue, excluding foreign exchange translation, grew by 11% to £308.1 million.
Growth in average AuM of 16% resulted in net management fee income increasing by 17% from £250.5 million to £294.3 million. The GBP:USD exchange rate moved favourably over the year with an average rate of 1.2958 compared with 1.3464 in FY2017/18. Distribution costs of £13.3 million were higher than the prior year (FY2017/18: £9.2 million) as a consequence of the growth in intermediary retail AuM.
The net management fee margin was 48bps (FY2017/18: 49bps) with the movement reflecting the impact of new large mandates and incremental allocations to existing large segregated accounts (-1.5bps) largely offset by positive mix effects (+1bp), particularly the growth in higher margin corporate debt and alternatives AuM, and the increase in intermediary retail AuM. Other factors, such as sub-theme mix and competition, had an estimated combined impact of -0.5bps.
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, determined with reference to weighted average assets under management.
|
Theme |
Net management |
Net management |
Performance |
Performance |
Net management |
Net management |
|
External debt |
55.1 |
50.7 |
0.5 |
3.1 |
44 |
46 |
|
Local currency |
54.2 |
46.6 |
0.8 |
12.9 |
39 |
42 |
|
Corporate debt |
51.9 |
35.8 |
0.2 |
0.9 |
56 |
59 |
|
Blended debt |
81.2 |
68.2 |
1.0 |
4.7 |
49 |
49 |
|
Equities |
25.1 |
23.3 |
- |
0.1 |
76 |
81 |
|
Alternatives |
15.1 |
12.3 |
0.3 |
- |
129 |
131 |
|
Multi-asset |
4.3 |
6.4 |
- |
0.2 |
77 |
74 |
|
Overlay/liquidity |
7.4 |
7.2 |
- |
- |
16 |
17 |
|
Total |
294.3 |
250.5 |
2.8 |
21.9 |
48 |
49 |
The Group generated performance fees of £2.8 million in the year (FY2017/18: £21.9 million), the lower level reflecting weaker market performance in the first six months of the financial year when most of the performance fee-eligible funds have fee crystallisation dates. At 30 June 2019, 14% of the Group's AuM was eligible to earn performance fees (30 June 2018: 13%) of which a significant proportion is subject to rebate agreements. The Group continues to expect its diverse sources of net management fee income to generate the substantial majority of its net revenues going forward.
The impact of stronger currencies against Sterling on the translation of the Group's non-Sterling assets and liabilities at the period end resulted in a foreign exchange gain of £6.2 million (FY2017/18: £2.0 million loss). The Group recognised net realised and unrealised hedging gains of £5.1 million (FY2017/18: £1.8 million gain) to give a total foreign exchange gain in revenues of £11.3 million (FY2017/18: £0.2 million loss).
The growth in other revenue to £5.9 million (FY2017/18: £4.1 million) reflects higher levels of fees including those relating to real estate projects managed by AshmoreAVENIDA.
Operating costs
Total operating costs of £115.8 million (FY2017/18: £100.4 million) include £3.3 million (FY2017/18: £1.1 million) of consolidated fund expenses.
Excluding these costs, statutory operating expenses increased by 13%, or £13.2 million, compared with the prior year. This movement comprises: £9.1 million of variable remuneration consistent with Ashmore's strong operating and financial performance this year; the AshmoreAVENIDA acquisition that added £2.8 million; and like-for-like inflation of £1.3 million primarily reflecting foreign exchange translation as Sterling fell over the period.
At 30 June 2019, the Group had 307 employees, an increase of 54 compared with 30 June 2018. The acquisition of AshmoreAVENIDA added 42 employees, of whom 23 are involved in investment management operations and 19 are employed in roles relating to the various aspects of real estate project management. In total, therefore, the Group has 288 employees involved in investment management-related activities. The remaining increase in headcount mainly relates to the establishment of the Group's office in Ireland and small increases in headcount in the local platforms.
While average headcount increased by 16%, fixed staff costs of £26.5 million were only 10% higher than the prior year given the nature of the acquired business in Colombia.
Other operating costs, excluding depreciation, amortisation and consolidated fund expenses, increased by 9% to £23.5 million (FY2017/18: £21.5 million), reflecting the AshmoreAVENIDA acquisition, the office in Ireland and the full year impact of MiFID II.
The accrual for variable compensation was £57.7 million, an increase of 19% compared with the prior year (FY2017/18: £48.6 million), and representing 22.5% of EBVCIT (FY2017/18: 21.5%).
Total personnel expenses for the financial year were therefore £84.2 million, 16% higher than the £72.8 million reported for the prior year.
EBITDA
EBITDA increased by 14% to £207.6 million (FY2017/18: £181.5 million). On an adjusted basis, excluding the effects of foreign exchange translation and seed capital-related items, EBITDA increased by 10% from £183.6 million to £201.8 million.
The adjusted EBITDA margin was maintained at 66%.
Finance income
Net finance income of £17.4 million includes seed capital-related items totalling £10.7 million. Excluding these items, the Group's net interest income for the period increased to £7.7 million (FY2017/18: £4.6 million), reflecting higher prevailing market interest rates.
Profit before tax
Statutory profit before tax of £219.9 million is 15% higher than in the prior year primarily as a result of the strong growth in net revenues and limited cost inflation.
Taxation
The majority of the Group's profit is subject to UK taxation. Of the total current tax charge for the financial year of £41.8 million (FY2017/18: £38.2 million), £36.3 million relates to UK corporation tax (FY2017/18: £30.3 million).
There is a £21.8 million net deferred tax asset on the Group's balance sheet as at 30 June 2019 (30 June 2018: £18.5 million), which arises principally as a result of timing differences in the recognition of the accounting expense and actual tax deduction in connection with i) share-based payments and ii) goodwill and intangibles arising on the acquisition of Ashmore's equity business.
The Group's effective tax rate for the year is 17.5%, which is slightly lower than the prevailing UK corporation tax rate of 19.0% (FY2017/18: 19.8%). This reflects the blend of the varying rates that apply across the territories in which the Group operates as well as other effects. Note 12 to the financial statements provides a full reconciliation of this difference compared to the blended UK corporation tax rate.
Earnings per share
Reflecting the strong growth in profit before tax and a lower effective tax rate compared with the prior year, basic earnings per share increased by 18% to 26.6 pence. On a diluted basis, earnings per share increased by 18% to 25.0 pence. Excluding the effects of foreign exchange translation, seed capital-related items and relevant tax, diluted earnings per share increased by 15% to 23.4 pence (FY2017/18: 20.3 pence).
Balance sheet
Ashmore's strategy is to maintain a strong balance sheet 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. These include establishing local asset management ventures, seeding and investing in funds and other assets, and other strategic initiatives.
Consistent with this approach, as at 30 June 2019, total equity attributable to shareholders of the parent was £843.2 million (30 June 2018: £759.2 million) and there continues to be no debt on the Group's balance sheet.
Cash
Ashmore's business model consistently converts operating profits to cash at a high rate. The Group generated cash of £219.6 million before working capital changes (FY2017/18: £213.5 million) and £211.2 million of cash from operations (FY2017/18: £206.6 million) from operating profit of £202.8 million for the period (FY2017/18: £176.5 million). On an adjusted basis, EBITDA of £201.8 million resulted in cash from operations excluding consolidated funds of £214.3 million, a conversion rate of 106% (FY2017/18: 114%).
Cash and cash equivalents by currency
|
|
30 June 2019 £m |
30 June 2018 £m |
|
Sterling |
157.8 |
77.2 |
|
US dollar |
269.5 |
322.9 |
|
Other |
49.9 |
32.9 |
|
Total |
477.2 |
433.0 |
Active management of the Group's balance sheet as the GBP:USD rate fell resulted in a higher proportion of the Group's cash being held in Sterling at the period end.
Seed capital investments
Ashmore has an active seed capital programme that supports growth in third-party assets under management and generates incremental profits for the Group. Approximately 16%, or more than US$14 billion, of the Group's AuM are in funds that have been seeded.
Seed capital investments are subject to strict monitoring by the Board within a framework of approval thresholds and set limits including by investment theme and currency.
During the financial year, the Group made new seed investments of £108.3 million and successfully redeemed £77.8 million of previous investments. Given positive market movements of £19.0 million, the market value of the Group's seed capital investments increased from £228.3 million to £277.8 million. Ashmore has also committed £21.2 million of seed capital to funds that was undrawn at the period end, giving a total committed value for the seed capital programme of £299.0 million.
The seed investments made during the year were across a broad range of new products, such as a low volatility local currency bond, blended debt ESG and China bond funds, and also to add scale to existing products in the corporate debt and equities themes. Redemptions were focused on the alternatives and corporate debt themes.
The investment cost of the Group's current seed capital investments is £234.7 million (30 June 2018: £195.3 million), representing 31% of Group net tangible equity (30 June 2018: 29%).
Seed capital market value by currency
|
|
30 June 2019 £m |
30 June 2018 £m |
|
US dollar |
250.7 |
203.9 |
|
Colombian peso |
14.8 |
13.6 |
|
Other |
12.3 |
10.8 |
|
Total |
277.8 |
228.3 |
Excluding the benefit of third-party management fees generated from seeded funds, the seed capital programme generated a pre-tax profit of £10.7 million for the year (FY2017/18: £10.1 million), comprising positive market and other movements of £9.8 million and a foreign exchange translation gain of £0.9 million (FY2017/18: £14.0 million gain and £3.9 million loss, respectively). The realised gain was £2.4 million (FY2017/18: £5.0 million).
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.
Financial impact of seed capital investments
|
|
FY2018/19 £m |
FY2017/18 £m |
|
Consolidated funds (note 20): |
|
|
|
Gains/(losses) on investment securities |
0.5 |
3.0 |
|
Change in third-party interests in consolidated funds |
3.8 |
(2.4) |
|
Operating costs |
(3.3) |
(1.1) |
|
Interest and dividend income |
5.5 |
5.1 |
|
Sub-total: consolidated funds |
6.5 |
4.6 |
|
|
|
|
|
Unconsolidated funds (note 8): |
|
|
|
Market return |
3.3 |
9.4 |
|
Foreign exchange |
0.9 |
(3.9) |
|
Sub-total: unconsolidated funds |
4.2 |
5.5 |
|
|
|
|
|
Total seed capital profit/(loss) |
10.7 |
10.1 |
|
- realised |
2.4 |
5.0 |
|
- unrealised |
8.3 |
5.1 |
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. The proportion of fee income received in foreign currency and held as cash or cash equivalents is marked to market at the period end exchange rate through the statement of comprehensive income.
Goodwill and intangible assets
At 30 June 2019, goodwill and intangible assets on the Group's balance sheet totalled £87.3 million (30 June 2018: £74.2 million). The movement reflects an amortisation charge of £4.1 million (FY2017/18: £4.3 million), a foreign exchange revaluation gain through reserves of £3.4 million (FY2017/18: £1.4 million loss), and goodwill and intangible assets arising on the AshmoreAVENIDA acquisition of £13.8 million.
Shares held by Employee Benefit Trust (EBT)
The Group's EBT purchases and holds shares in anticipation of the vesting of share awards. At 30 June 2019, the EBT owned 40,355,103 ordinary shares (30 June 2018: 36,679,643 ordinary shares), representing 5.7% of the Group's issued share capital (30 June 2018: 5.2%). On 10 September 2018, the Group transferred 5,368,331 ordinary shares to the EBT that were previously held in treasury. This transfer had no impact on the diluted weighted average share count.
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.
The Board has therefore assessed the amount of Pillar II capital required to be £121.0 million (30 June 2018: £119.5 million).
The Group has total capital resources of £678.6 million, equivalent to 95 pence per share, giving a solvency ratio of 461% and excess regulatory capital of £557.6 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.
In recognition of Ashmore's performance during the period, and consistent with the stated intention to re-establish dividend cover of at least 1.5 times statutory earnings, the Directors are recommending a final dividend of 12.10 pence per share for the year ending 30 June 2019, which, subject to shareholder approval, will be paid on 6 December 2019 to shareholders who are on the register on 1 November 2019.
Tom Shippey
Group Finance Director
6 September 2019
Alternative performance measures
Ashmore discloses non-GAAP financial alternative performance measures in order to assist shareholders' understanding of the operational performance of the Group during the accounting period. The calculation of APMs is consistent with the prior year period 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 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.
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, finance 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 the principles 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 it 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.
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 |
|
- Group strategy is reviewed and approved by a Board with relevant industry experience |
|
- Market capacity issues and increased competition |
|
- Experienced Emerging Markets investment professionals, with deep and ongoing market knowledge, participate in Investment Committees and provide quarterly updates to the Board - Diversification of investment themes and capabilities, and periodic capacity reviews - Strong balance sheet with no borrowing - Barriers to entry remain high, e.g. demonstration of long-term investment track record |
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 - ESG working group |
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 FX hedging policy and FX Management Committee |
Investment risks (Responsibility: Group Investment Committees) |
||
|
- Downturn in long-term performance |
|
- Consistent investment philosophy over more than 25 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, best execution, market abuse and client order handling - 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 |
Operational risks (Responsibility: Group Risk and Compliance Committee) |
||
|
- Inadequate security of information including cyber security |
|
- Information security and data protection policies, subject to annual review including cyber security |
|
- 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 |
|
- Breach of investment guidelines or restrictions
|
|
- Compliance includes Global Investment Restrictions Coding (GIRC) function, and investment decisions subject to pre-trade compliance |
|
- Failure of IT infrastructure, including inability to support business growth |
|
- Appropriate IT policies with annual review cycle - IT systems and environmental monitoring |
|
- Trading with unauthorised counterparty |
|
- Approved counterparty list |
|
- 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 - Due diligence on all new, and regular reviews of existing, service providers - Insurance policies to ensure appropriate client litigation cover |
|
- Insufficient resources, including loss of key staff or inability to attract staff, 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 |
|
- 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 money laundering and bribery risks - Compliance policies covering global and local offices. Compliance monitoring programme covers financial crime risks such as money laundering, bribery and corruption - Global conflicts of interest and inducements policies, with regular reports on the former to the Board - Conduct risk and organisational culture indicators are considered on a monthly basis by the Group RCC and on an annual basis by the Board |
|
- Inadequate tax oversight or advice |
|
- Dedicated in-house tax specialist and Group Tax policy covering all Group entities |
|
- Inadequate oversight of Ashmore overseas offices
|
|
- Group Finance Director has oversight responsibility for overseas offices, and Operating Committee has oversight of the operating model with annual reviews. Senior staff take local Board/advisory positions - Local RCCs held and Group RCC receives updates |
|
- Ineffective or mismanaged third-party services |
|
- Due diligence on all new third parties and periodic meetings with core service providers |
|
- Ineffective implementation of strategic initiatives or changes to the Group's business or operating model |
|
- Strategic and business decisions are approved by the Board and executives - The Group's operating model is reviewed when implementing strategic initiatives and reported to the RCC annually |
Consolidated statement of comprehensive income
For the year ended 30 June 2019
|
|
Notes |
2019 |
2018 |
|
Management fees |
|
307.6 |
259.7 |
|
Performance fees |
|
2.8 |
21.9 |
|
Other revenue |
|
5.9 |
4.1 |
|
Total revenue |
|
316.3 |
285.7 |
|
Distribution costs |
|
(13.3) |
(9.2) |
|
Foreign exchange |
7 |
11.3 |
(0.2) |
|
Net revenue |
|
314.3 |
276.3 |
|
|
|
|
|
|
Gains/(losses) on investment securities |
20 |
0.5 |
3.0 |
|
Change in third-party interests in consolidated funds |
20 |
3.8 |
(2.4) |
|
Personnel expenses |
9 |
(84.2) |
(72.8) |
|
Other expenses |
11 |
(31.6) |
(27.6) |
|
Operating profit |
|
202.8 |
176.5 |
|
|
|
|
|
|
Finance income |
8 |
17.4 |
15.2 |
|
Share of losses from associates and joint ventures |
27 |
(0.3) |
(0.4) |
|
Profit before tax |
|
219.9 |
191.3 |
|
|
|
|
|
|
Tax expense |
12 |
(38.4) |
(37.8) |
|
Profit for the year |
|
181.5 |
153.5 |
|
|
|
|
|
|
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 |
|
14.7 |
(4.5) |
|
Fair value reserve (available-for-sale financial assets): |
|
|
|
|
Net change in fair value |
|
- |
2.6 |
|
Net amount transferred to profit or loss |
|
- |
(3.3) |
|
Cash flow hedge intrinsic value gains/(losses) |
|
- |
0.2 |
|
Other comprehensive income, net of tax |
|
14.7 |
(5.0) |
|
Total comprehensive income for the year |
|
196.2 |
148.5 |
|
|
|
|
|
|
Profit attributable to: |
|
|
|
|
Equity holders of the parent |
|
178.6 |
151.4 |
|
Non-controlling interests |
|
2.9 |
2.1 |
|
Profit for the year |
|
181.5 |
153.5 |
|
|
|
|
|
|
Total comprehensive income attributable to: |
|
|
|
|
Equity holders of the parent |
|
193.2 |
146.6 |
|
Non-controlling interests |
|
3.0 |
1.9 |
|
Total comprehensive income for the year |
|
196.2 |
148.5 |
|
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic |
13 |
26.57p |
22.59p |
|
Diluted |
13 |
25.04p |
21.30p |
Consolidated balance sheet
As at 30 June 2019
|
|
Notes |
2019 |
2018 |
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Goodwill and intangible assets |
15 |
87.3 |
74.2 |
|
Property, plant and equipment |
16 |
1.5 |
1.1 |
|
Investment in associates and joint ventures |
27 |
1.8 |
1.7 |
|
Non-current financial assets measured at fair value |
20 |
31.6 |
43.9 |
|
Deferred acquisition costs |
|
0.8 |
0.9 |
|
Deferred tax assets |
18 |
30.2 |
26.2 |
|
|
|
153.2 |
148.0 |
|
Current assets |
|
|
|
|
Investment securities |
20 |
278.7 |
219.1 |
|
Available-for-sale financial assets |
20 |
- |
5.6 |
|
Financial assets measured at fair value |
20 |
16.0 |
23.5 |
|
Trade and other receivables |
17 |
79.4 |
71.2 |
|
Cash and cash equivalents |
|
477.2 |
433.0 |
|
|
|
851.3 |
752.4 |
|
|
|
|
|
|
Non-current assets held for sale |
20 |
44.7 |
7.6 |
|
Total assets |
|
1,049.2 |
908.0 |
|
|
|
|
|
|
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 |
|
812.6 |
742.8 |
|
Foreign exchange reserve |
|
14.9 |
0.3 |
|
Available-for-sale fair value reserve |
|
- |
0.4 |
|
|
|
843.2 |
759.2 |
|
Non-controlling interests |
|
10.9 |
1.3 |
|
Total equity |
|
854.1 |
760.5 |
|
Liabilities |
|
|
|
|
Non-current liabilities |
|
|
|
|
Deferred tax liabilities |
18 |
8.4 |
7.7 |
|
|
|
8.4 |
7.7 |
|
Current liabilities |
|
|
|
|
Current tax |
|
22.5 |
5.5 |
|
Third-party interests in consolidated funds |
20 |
107.0 |
76.1 |
|
Derivative financial instruments |
21 |
1.1 |
0.1 |
|
Trade and other payables |
25 |
56.1 |
57.3 |
|
|
|
186.7 |
139.0 |
|
|
|
|
|
|
Non-current liabilities held for sale |
20 |
- |
0.8 |
|
Total liabilities |
|
195.1 |
147.5 |
|
Total equity and liabilities |
|
1,049.2 |
908.0 |
Approved by the Board on 6 September 2019 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 2019
|
|
Attributable to equity holders of the parent |
|
|
||||||
|
|
Issued capital £m |
Share premium |
Retained earnings |
Foreign exchange reserve |
Available-for-sale reserve |
Cash flow hedging reserve |
Total |
Non-controlling interests |
Total |
|
Balance at 30 June 2017 |
0.1 |
15.6 |
703.2 |
4.6 |
1.1 |
(0.2) |
724.4 |
2.3 |
726.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
151.4 |
- |
- |
- |
151.4 |
2.1 |
153.5 |
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences arising on foreign operations |
- |
- |
- |
(4.3) |
- |
- |
(4.3) |
(0.2) |
(4.5) |
|
Net fair value gain on available-for-sale assets including tax |
- |
- |
- |
- |
2.6 |
- |
2.6 |
- |
2.6 |
|
Net gains reclassified from available-for-sale reserve to comprehensive income |
- |
- |
- |
- |
(3.3) |
- |
(3.3) |
- |
(3.3) |
|
Cash flow hedge intrinsic value gains |
- |
- |
- |
- |
- |
0.2 |
0.2 |
- |
0.2 |
|
Total comprehensive income/(loss) |
- |
- |
151.4 |
(4.3) |
(0.7) |
0.2 |
146.6 |
1.9 |
148.5 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
|
|
Purchase of own shares |
- |
- |
(18.0) |
- |
- |
- |
(18.0) |
- |
(18.0) |
|
Acquisition of non-controlling interests |
- |
- |
- |
- |
- |
- |
- |
(0.4) |
(0.4) |
|
Share-based payments |
- |
- |
23.6 |
- |
- |
- |
23.6 |
- |
23.6 |
|
Dividends to equity holders |
- |
- |
(117.4) |
- |
- |
- |
(117.4) |
- |
(117.4) |
|
Dividends to non-controlling interests |
- |
- |
- |
- |
- |
- |
- |
(2.5) |
(2.5) |
|
Total contributions and distributions |
- |
- |
(111.8) |
- |
- |
- |
(111.8) |
(2.9) |
(114.7) |
|
Balance at 30 June 2018 |
0.1 |
15.6 |
742.8 |
0.3 |
0.4 |
- |
759.2 |
1.3 |
760.5 |
|
Adjustment on adoption of IFRS 9 (note 3) |
- |
- |
0.4 |
- |
(0.4) |
- |
- |
- |
- |
|
Adjusted balance at 1 July 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 (note 31) |
- |
- |
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 |
Consolidated cash flow statement
For the year ended 30 June 2019
|
|
2019 |
2018 |
|
Operating activities |
|
|
|
Operating profit |
202.8 |
176.5 |
|
Adjustments for non-cash items: |
|
|
|
Depreciation and amortisation |
4.8 |
5.0 |
|
Accrual for variable compensation |
27.6 |
28.0 |
|
Unrealised foreign exchange gains/(losses) |
(11.3) |
1.4 |
|
Other non-cash items |
(4.3) |
2.6 |
|
Cash generated from operations before working capital changes |
219.6 |
213.5 |
|
Changes in working capital: |
|
|
|
Decrease/(increase) in trade and other receivables |
(8.2) |
(0.3) |
|
Increase/(decrease) in derivative financial instruments |
1.0 |
0.3 |
|
Increase/(decrease) in trade and other payables |
(1.2) |
(6.9) |
|
Cash generated from operations |
211.2 |
206.6 |
|
Taxes paid |
(22.1) |
(47.3) |
|
Net cash generated from operating activities |
189.1 |
159.3 |
|
|
|
|
|
Investing activities |
|
|
|
Interest and investment income received |
15.4 |
9.6 |
|
Dividends received |
- |
0.2 |
|
Acquisition of subsidiary, net of cash acquired (note 31) |
(4.9) |
- |
|
Purchase of non-current financial assets measured at fair value |
(4.8) |
(19.2) |
|
Purchase of financial assets held for sale |
(64.0) |
(14.4) |
|
Purchase of available-for-sale financial assets |
- |
(0.1) |
|
Purchase of financial assets measured at fair value |
(0.3) |
- |
|
Sale of non-current financial assets measured at fair value |
24.0 |
0.4 |
|
Sale of financial assets held for sale |
19.4 |
- |
|
Sale of available-for-sale financial assets |
- |
8.4 |
|
Sale of financial assets measured at fair value |
4.4 |
22.1 |
|
Sale of investment securities |
4.7 |
15.8 |
|
Net cash from initial consolidation of seed capital investments |
3.5 |
0.1 |
|
Purchase of property, plant and equipment |
(0.8) |
(0.2) |
|
Net cash generated/(used in) investing activities |
(3.4) |
22.7 |
|
|
|
|
|
Financing activities |
|
|
|
Dividends paid to equity holders |
(118.3) |
(117.4) |
|
Dividends paid to non-controlling interests |
(2.4) |
(2.5) |
|
Third-party subscriptions into consolidated funds |
2.7 |
19.4 |
|
Third-party redemptions from consolidated funds |
(10.3) |
(47.4) |
|
Distributions paid by consolidated funds |
(1.5) |
(1.7) |
|
Acquisition of interest from non-controlling interests |
- |
(0.4) |
|
Purchase of own shares |
(23.7) |
(18.0) |
|
Net cash used in financing activities |
(153.5) |
(168.0) |
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
32.2 |
14.0 |
|
|
|
|
|
Cash and cash equivalents at beginning of year |
433.0 |
432.5 |
|
Effect of exchange rate changes on cash and cash equivalents |
12.0 |
(13.5) |
|
Cash and cash equivalents at end of year |
477.2 |
433.0 |
|
|
|
|
|
Cash and cash equivalents at end of year comprise: |
|
|
|
Cash at bank and in hand |
73.9 |
68.6 |
|
Daily dealing liquidity funds |
243.3 |
300.3 |
|
Deposits |
160.0 |
64.1 |
|
|
477.2 |
433.0 |
Company balance sheet
As at 30 June 2019
|
|
Notes |
2019 |
2018 |
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Goodwill |
15 |
4.1 |
4.1 |
|
Property, plant and equipment |
16 |
0.5 |
0.5 |
|
Investment in subsidiaries |
26 |
19.9 |
19.9 |
|
Deferred acquisition costs |
|
0.8 |
0.9 |
|
Deferred tax assets |
18 |
16.6 |
13.0 |
|
|
|
41.9 |
38.4 |
|
Current assets |
|
|
|
|
Trade and other receivables |
17 |
495.0 |
467.9 |
|
Cash and cash equivalents |
|
150.3 |
159.2 |
|
|
|
645.3 |
627.1 |
|
Total assets |
|
687.2 |
665.5 |
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
Capital and reserves |
|
|
|
|
Issued capital |
22 |
0.1 |
0.1 |
|
Share premium |
|
15.6 |
15.6 |
|
Retained earnings |
|
632.6 |
573.8 |
|
Total equity attributable to equity holders of the Company |
|
648.3 |
589.5 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Current liabilities |
|
|
|
|
Derivative financial instruments |
|
0.7 |
- |
|
Trade and other payables |
25 |
38.2 |
76.0 |
|
|
|
38.9 |
76.0 |
|
Total equity and liabilities |
|
687.2 |
665.5 |
Approved by the Board on 6 September 2019 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 2019
|
|
Issued |
Share |
Retained earnings |
Total equity attributable to equity holders of the parent £m |
|
Balance at 30 June 2017 |
0.1 |
15.6 |
580.3 |
596.0 |
|
|
|
|
|
|
|
Profit for the year |
- |
- |
113.1 |
113.1 |
|
Purchase of own shares |
- |
- |
(18.0) |
(18.0) |
|
Share-based payments |
- |
- |
15.8 |
15.8 |
|
Dividends to equity holders |
- |
- |
(117.4) |
(117.4) |
|
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 (note 31) |
- |
- |
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 |
Company cash flow statement
For the year ended 30 June 2019
|
|
2019 |
2018 |
|
Operating activities |
|
|
|
Operating profit |
178.4 |
113.7 |
|
Adjustments for: |
|
|
|
Depreciation and amortisation |
0.3 |
0.5 |
|
Accrual for variable compensation |
17.2 |
14.5 |
|
Unrealised foreign exchange losses/(gains) |
(15.5) |
6.8 |
|
Dividends received from subsidiaries |
(174.4) |
(118.4) |
|
Cash generated from operations before working capital changes |
6.0 |
17.1 |
|
Changes in working capital: |
|
|
|
Decrease/(increase) in trade and other receivables |
(9.7) |
30.5 |
|
Increase/(decrease) in derivative financial instruments |
0.7 |
- |
|
Increase/(decrease) in trade and other payables |
(37.8) |
7.4 |
|
Cash generated from/(used in) operations |
(40.8) |
55.0 |
|
Taxes paid |
(12.5) |
(10.4) |
|
Net cash generated from/(used in) operating activities |
(53.3) |
44.6 |
|
|
|
|
|
Investing activities |
|
|
|
Interest received |
0.7 |
1.2 |
|
Acquisition of subsidiary (note 31) |
(5.2) |
- |
|
Loans advanced to subsidiaries |
(66.8) |
(180.7) |
|
Loans repaid by subsidiaries |
80.1 |
80.3 |
|
Dividends received from subsidiaries |
174.4 |
118.4 |
|
Purchase of property, plant and equipment |
(0.3) |
(0.2) |
|
Net cash generated from investing activities |
182.9 |
19.0 |
|
|
|
|
|
Financing activities |
|
|
|
Dividends paid |
(118.3) |
(117.4) |
|
Purchase of own shares |
(23.7) |
(18.0) |
|
Net cash used in financing activities |
(142.0) |
(135.4) |
|
|
|
|
|
Net decrease in cash and cash equivalents |
(12.4) |
(71.8) |
|
|
|
|
|
Cash and cash equivalents at beginning of year |
159.2 |
229.7 |
|
Effect of exchange rate changes on cash and cash equivalents |
3.5 |
1.3 |
|
Cash and cash equivalents at end of year |
150.3 |
159.2 |
|
|
|
|
|
Cash and cash equivalents at end of year comprise: |
|
|
|
Cash at bank and in hand |
19.6 |
38.4 |
|
Daily dealing liquidity funds |
10.7 |
70.8 |
|
Deposits |
120.0 |
50.0 |
|
|
150.3 |
159.2 |
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 2019 were authorised for issue by the Board of Directors on 6 September 2019.
2) Basis of preparation
The Group and Company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) effective for the Group's reporting for the year ended 30 June 2019 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 33.
3) New standards, interpretations and amendments adopted by the Group
The Group has applied IFRS 9 Financial Instruments (IFRS 9) and IFRS 15 Revenue from Contracts with Customers (IFRS 15) for the first time in its annual reporting period commencing on 1 July 2018.
The impact of the adoption of these standards and the changes to the Group's accounting policies are disclosed below.
IFRS 9 Financial Instruments
IFRS 9 replaces the classification and measurement requirements previously contained in IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities, however, it eliminates the previous IAS 39 categories for financial assets of held-to-maturity, loans and receivables and available-for-sale. In accordance with IFRS 9, the Group's financial assets have been reclassified into financial assets at fair value through profit or loss (FVTPL) and at amortised cost.
The Group has applied IFRS 9 retrospectively, with the cumulative effect of initially applying the standard recorded as an adjustment to the opening retained earnings at 1 July 2018. Comparative information has not been restated. The impact of applying IFRS 9 is an increase of £0.4m to the opening balance of retained earnings and a corresponding decrease of £0.4m to the available-for-sale reserve, as a result of reclassifying available-for-sale financial assets to the fair value through profit and loss (FVTPL) category.
The effect of adopting IFRS 9 on the carrying amounts of financial assets at 1 July 2018 relates solely to the reclassification of available-for-sale assets valued at £5.6m into the FVTPL category. The financial assets reclassified are seed capital investments that the Group manages on a fair value basis that are now mandatorily measured at FVTPL under IFRS 9. The table below sets out the movement in the Group's financial asset categories under IFRS 9.
|
As at 1 July 2018 |
IFRS 9 |
Classification adjustment |
IAS 39 |
|
Financial assets category |
|
|
|
|
Non-current financial assets |
43.9 |
- |
43.9 |
|
Investment securities |
219.1 |
- |
219.1 |
|
Available-for-sale financial assets |
- |
(5.6) |
5.6 |
|
Financial assets at FVTPL |
29.1 |
5.6 |
23.5 |
|
Financial assets at amortised cost |
504.2 |
- |
504.2 |
|
Total financial assets |
796.3 |
- |
796.3 |
The classification of financial liabilities has remained largely unchanged from IAS 39. The Group's hedging relationships that were designated as cash flows hedges under IAS 39 at 30 June 2018 met the criteria for hedge accounting under IFRS 9 at 1 July 2018 and, therefore, continue to be treated as cash flow hedges.
IFRS 9 introduces an expected credit loss model (ECL) for the assessment of impairment losses and replaces the incurred loss model in IAS 39. Under the ECL model, impairment losses are recorded if there is an expectation of credit losses, even in the absence of a default event. This model is applicable for financial assets measured at amortised cost. Therefore, the Group's assets to which the ECL model applies are trade debtors (note 17), which do not have a history of credit losses, are short-term in nature and assessed to have a low credit risk. The Group has assessed the lifetime expected credit losses by applying its internal risk modelling weightings for both likelihood of loss and exposure to loss. Under the ECL model there is no change to the carrying values of the Group's assets.
The adoption of IFRS 9 does not have a material impact on the Group's reported results. The accounting policies in respect of the classification and measurement of financial instruments in accordance with IFRS 9 are set out in note 4.
IFRS 15 Revenue from Contracts with Customers
The Group adopted IFRS 15 from 1 July 2018 which resulted in changes in the revenue recognition policies and disclosures. In accordance with the transition provisions in IFRS 15, the Group has adopted a modified retrospective approach from 1 July 2018 with no comparatives to be restated.
IFRS 15 supersedes IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The core principle of IFRS 15 is that an entity should recognise revenue to depict 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 standard introduces a 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 has undertaken a comprehensive review of the terms and conditions of customer contracts across its business lines in order to determine, using the five-step model, the Group's performance obligations and the associated timing of each performance obligation. The review concluded that, while the basis of assessing revenue recognition is different to that used under IAS 18, the point at which revenue is recognised and measured has remained consistent. Based on this assessment, the Group has not identified any material adjustments on adoption of IFRS 15, and there is no material impact on the Group's reported results.
The Group has expanded its revenue recognition policy to describe the categories that better depict the nature of its revenues and clarify how the Group's revenues are identified and the point at which the revenue is recognised. The revenue accounting policy is set out in note 4.
New standards and interpretations not yet adopted
At the date of authorisation of these consolidated financial statements, the standards and interpretations relevant to the Group that had been issued but not yet adopted were IFRS 16 Leases (IFRS 16) and IFRIC 23 Uncertainty over Income Tax Treatments (IFRIC 23). The expected impact of these standards on the Group is set out below.
IFRS 16 Leases
IFRS 16 is effective for periods beginning on or after 1 January 2019, with earlier adoption permitted.
Where the Group is a lessee, IFRS 16 requires operating leases to be recorded in the Group's statement of financial position. A right-of-use (ROU) asset will be recognised within property, plant and equipment and a lease liability will be recorded within non-current liabilities.
The ROU asset and lease liability will be calculated based on the expected payments, requiring an assessment as to the likely effect of renewal options, and are discounted using the relevant incremental borrowing rate for each lease. The ROU asset will be depreciated on a straight-line basis over the expected life of the lease. The lease liability will be reduced as lease payments are made with an interest expense recognised using the effective interest method as a component of finance costs. This will result in a higher proportion of the lease expense being recognised earlier in the life of the lease.
The Group has reviewed all its lease arrangements and assessed the estimated impact that the initial application of IFRS 16 will have on its consolidated financial statements starting from 1 July 2019.
The Group has considered the available transition options, and has decided to apply the modified retrospective approach where the ROU asset is measured as if IFRS 16 had been applied from lease commencement, applying a discount rate assessed at the date of transition, and currently estimates that the impact will be a gross-up of £12.4 million for ROU lease assets and £12.6 million in relation to lease liabilities, with £0.2 million deducted from the opening balance of retained earnings. Comparative information will not be restated. The Group expects to apply 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 (see note 30) which are subject to IFRS 16 requirements. Overall, the impact of IFRS 16 represents less than 2% increase to consolidated total assets and 7% increase to consolidated total liabilities. In addition, the Group has estimated that its profit before tax will be reduced by £0.2m in the next year as a result of applying IFRS 16. The impact on the Group's regulatory capital requirement has been assessed to be immaterial.
IFRIC 23 Uncertainty over Income Tax Treatments
On 7 June 2017, the IASB issued IFRIC 23. The interpretation provides clarification as to how the recognition and measurement requirements of IAS 12 Income Tax should be applied. The Group has assessed the impact of IFRIC 23 and does not expect it to have a material impact when it becomes effective on 1 July 2019.
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 27). 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 2019.
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 28.
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 are amortised, if appropriate, over their useful lives.
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 designated as FVTPL, non-current financial assets held for sale, financial assets designated as 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 designated as FVTPL
Investment securities represent securities, other than derivatives, held by consolidated funds. These securities are designated as FVTPL and 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 designated as FVTPL
Financial assets designated as FVTPL include certain readily realisable interests in seeded funds, non-current financial assets measured at fair value and derivatives. The Group designates financial assets as FVTPL when:
- the financial assets are managed, evaluated and reported internally on a fair value basis; and
- the classification at fair value eliminates or significantly reduces an accounting mismatch which would otherwise arise.
From the date the financial asset is designated as FVTPL, 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 designated as 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 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 designated as 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 assumptions 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 for which sufficient and reliable data is available. 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
The Group adopted IFRS 9 on 1 July 2018. Prior to adoption of IFRS 9, impairment was only recognised when a default occurred. Under IFRS 9, impairment losses on the Group's financial assets at amortised cost are measured using an expected credit loss (ECL) model. Under the 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. For trade receivables, 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.
For cash deposits held with banks, externally derived credit ratings have been identified as representing the best available determinant of counterparty credit risk. 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 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 is not reversed.
Net revenue
The Group's total revenue includes management fees, performance fees and other revenue. The primary revenue source for the Group is fee income which comprises the fair value of the consideration received or receivable for the provision of investment management services. Revenue is recognised in the statement of comprehensive income as and when the related services are provided. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Net revenue is total revenue less distribution costs and including foreign exchange.
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 recognised as the service is provided and it is probable that the fee will be collected. Where management fees are received in advance, they are recognised over the period of the provision of the asset management service.
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 the fee 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 cost 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.
Operating leases
Payments due under operating leases are recognised in the statement of comprehensive income on a straight-line basis over the term of the lease. Lease incentives received are recognised on a straight-line basis over the lease term and are recorded as a reduction in premises costs.
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 designated as FVTPL.
Finance expense includes both realised and unrealised losses on financial assets designated as FVTPL.
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.
Treasury shares
Treasury shares are recognised in equity and are measured at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from the sale and original cost being taken to 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 £201.8 million for the year as reconciled in the Business review (FY2017/18: adjusted EBITDA of £183.6 million was derived by adjusting operating profit by £5.0 million of depreciation and amortisation expense, £0.5 million of income related to seed capital and £1.6 million of foreign exchange losses). 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
|
|
2019 |
2018 |
|
United Kingdom |
20.6 |
7.3 |
|
United States |
69.3 |
70.1 |
|
Other |
1.5 |
0.5 |
|
Total non-current assets |
91.4 |
77.9 |
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 (FY2017/18: 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
|
|
2019 |
2018 |
|
United Kingdom |
265.1 |
239.3 |
|
United States |
24.1 |
22.6 |
|
Other |
27.1 |
23.8 |
|
Total revenue |
316.3 |
285.7 |
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 2019 |
Closing rate |
Average rate year ended |
Average rate year ended |
|
US dollar |
1.2727 |
1.3200 |
1.2958 |
1.3464 |
|
Euro |
1.1176 |
1.1303 |
1.1345 |
1.1306 |
|
Indonesian rupiah |
17,980 |
18,843 |
18,660 |
18,329 |
|
Colombian peso |
4,082 |
3,872 |
4,058 |
3,943 |
Foreign exchange gains and losses are shown below.
|
|
2019 |
2018 |
|
Net realised and unrealised hedging gains |
5.1 |
1.8 |
|
Translation gains/(losses) on non-Sterling denominated monetary assets and liabilities |
6.2 |
(2.0) |
|
Total foreign exchange gains/(losses) |
11.3 |
(0.2) |
8) Finance income
|
|
2019 |
2018 |
|
Finance income |
|
|
|
Interest and investment income |
13.2 |
9.7 |
|
Net realised gains on disposal of available-for-sale financial assets |
- |
3.3 |
|
Net realised gains on seed capital investments measured at fair value |
2.4 |
1.7 |
|
Net unrealised gains on seed capital investments measured at fair value |
1.8 |
0.5 |
|
Total finance income |
17.4 |
15.2 |
Included within interest and investment income are gains of £5.5 million (FY 2017/18: £5.1 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 £3.2 million gains (FY2017/18: £0.4 million gains) in relation to held for sale investments (note 20a), £0.3 million gains (FY2017/18: £1.3 million gains) on financial assets measured at FVTPL (note 20b) and £0.7 million gains (FY2017/18: £2.8 million gains) on non-current financial assets measured at fair value (note 20c).
9) Personnel expenses
Personnel expenses during the year comprised the following:
|
|
2019 |
2018 |
|
Wages and salaries |
21.2 |
18.5 |
|
Performance-related cash bonuses |
26.4 |
20.6 |
|
Share-based payments |
31.3 |
28.0 |
|
Social security costs |
1.9 |
1.6 |
|
Pension costs |
1.6 |
1.6 |
|
Other costs |
1.8 |
2.5 |
|
Total personnel expenses |
84.2 |
72.8 |
Number of employees
At 30 June 2019, the Group had 307 employees. The acquisition of AshmoreAVENIDA added 42 employees of whom 23 are involved in investment management operations and 19 are employed in roles relating to the various aspects of real estate project management. 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 |
281 |
257 |
288 |
253 |
Directors' remuneration
There are retirement benefits accruing to two Executive Directors under a defined contribution scheme (FY2017/18: 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 |
2019 |
2018 |
|
Omnibus Plan |
31.3 |
27.4 |
|
Phantom Bonus Plan |
- |
0.6 |
|
Total share-based payments expense |
31.3 |
28.0 |
The total expense recognised for the year in respect of equity-settled share-based payment awards was £27.3 million (FY2017/18: £25.8 million).
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 share-based payments relating to the Omnibus Plan represent the combined cash and equity-settled payments.
Total expense by year awards were granted (excluding national insurance)
|
Group and Company |
2019 |
2018 |
|
2013 |
- |
3.6 |
|
2014 |
2.0 |
2.2 |
|
2015 |
3.4 |
3.5 |
|
2016 |
2.7 |
2.9 |
|
2017 |
3.8 |
4.5 |
|
2018 |
3.8 |
9.7 |
|
2019 |
11.6 |
- |
|
Total Omnibus share-based payments expense reported in comprehensive income |
27.3 |
26.4 |
Awards outstanding under the Omnibus Plan were as follows:
i) Equity-settled awards
|
Group and Company |
2019 |
2019 |
2018 |
2018 |
|
Restricted share awards |
|
|
|
|
|
At the beginning of the year |
22,155,889 |
£3.14 |
22,038,100 |
£3.14 |
|
Granted |
4,606,773 |
£3.33 |
5,448,753 |
£3.26 |
|
Vested |
(4,828,408) |
£3.69 |
(4,450,091) |
£3.29 |
|
Forfeited |
(700,481) |
£3.44 |
(880,873) |
£3.14 |
|
Awards outstanding at year end |
21,233,773 |
£3.04 |
22,155,889 |
£3.14 |
|
|
|
|
|
|
|
Bonus share awards |
|
|
|
|
|
At the beginning of the year |
9,151,992 |
£3.12 |
8,268,336 |
£3.10 |
|
Granted |
2,435,432 |
£3.33 |
2,392,022 |
£3.24 |
|
Vested |
(1,882,268) |
£3.76 |
(1,473,233) |
£3.28 |
|
Forfeited |
- |
- |
(35,133) |
£3.20 |
|
Awards outstanding at year end |
9,705,156 |
£3.07 |
9,151,992 |
£3.12 |
|
|
|
|
|
|
|
Matching share awards |
|
|
|
|
|
At the beginning of the year |
9,162,119 |
£3.15 |
8,273,435 |
£3.14 |
|
Granted |
2,450,926 |
£3.33 |
2,397,050 |
£3.24 |
|
Vested |
(1,598,210) |
£3.78 |
(1,113,239) |
£3.29 |
|
Forfeited |
(284,830) |
£3.60 |
(395,127) |
£3.23 |
|
Awards outstanding at year end |
9,730,005 |
£3.08 |
9,162,119 |
£3.15 |
|
Total |
40,668,934 |
£3.06 |
40,470,000 |
£3.14 |
ii) Cash-settled awards
|
Group and Company |
2019 |
2019 |
2018 |
2018 |
|
Restricted share awards |
|
|
|
|
|
At the beginning of the year |
143,542 |
£3.37 |
134,984 |
£3.72 |
|
Granted |
22,920 |
£3.33 |
45,003 |
£3.24 |
|
Vested |
(14,192) |
£3.83 |
- |
- |
|
Forfeited |
(32,756) |
£3.83 |
(36,445) |
£3.29 |
|
Awards outstanding at year end |
119,514 |
£3.18 |
143,542 |
£3.37 |
|
|
|
|
|
|
|
Bonus share awards |
|
|
|
|
|
At the beginning of the year |
86,673 |
£3.44 |
80,254 |
£3.78 |
|
Granted |
16,592 |
£3.33 |
33,753 |
£3.24 |
|
Vested |
(35,211) |
£3.83 |
(27,334) |
£3.29 |
|
Forfeited |
- |
- |
- |
- |
|
Awards outstanding at year end |
68,054 |
£3.21 |
86,673 |
£3.44 |
|
|
|
|
|
|
|
Matching share awards |
|
|
|
|
|
At the beginning of the year |
86,673 |
£3.44 |
80,254 |
£3.78 |
|
Granted |
16,592 |
£3.33 |
33,753 |
£3.24 |
|
Vested |
(10,644) |
£3.83 |
- |
- |
|
Forfeited |
(24,567) |
£3.83 |
(27,334) |
£3.29 |
|
Awards outstanding at year end |
68,054 |
£3.21 |
86,673 |
£3.44 |
|
Total |
255,622 |
£3.20 |
316,888 |
£3.41 |
iii) Total awards
|
Group and Company |
2019 |
2019 |
2018 |
2018 |
|
Restricted share awards |
|
|
|
|
|
At the beginning of the year |
22,299,431 |
£3.14 |
22,173,084 |
£3.14 |
|
Granted |
4,629,693 |
£3.33 |
5,493,756 |
£3.26 |
|
Vested |
(4,842,600) |
£3.69 |
(4,450,091) |
£3.29 |
|
Forfeited |
(733,237) |
£3.46 |
(917,318) |
£3.15 |
|
Awards outstanding at year end |
21,353,287 |
£3.04 |
22,299,431 |
£3.14 |
|
|
|
|
|
|
|
Bonus share awards |
|
|
|
|
|
At the beginning of the year |
9,238,665 |
£3.12 |
8,348,590 |
£3.11 |
|
Granted |
2,452,024 |
£3.33 |
2,425,775 |
£3.24 |
|
Vested |
(1,917,479) |
£3.76 |
(1,500,567) |
£3.28 |
|
Forfeited |
- |
- |
(35,133) |
£3.20 |
|
Awards outstanding at year end |
9,773,210 |
£3.07 |
9,238,665 |
£3.12 |
|
|
|
|
|
|
|
Matching share awards |
|
|
|
|
|
At the beginning of the year |
9,248,792 |
£3.15 |
8,353,689 |
£3.14 |
|
Granted |
2,467,518 |
£3.33 |
2,430,803 |
£3.24 |
|
Vested |
(1,608,854) |
£3.78 |
(1,113,239) |
£3.29 |
|
Forfeited |
(309,397) |
£3.62 |
(422,461) |
£3.23 |
|
Awards outstanding at year end |
9,798,059 |
£3.08 |
9,248,792 |
£3.15 |
|
Total |
40,924,556 |
£3.06 |
40,786,888 |
£3.14 |
The weighted average share price of awards granted to employees under the Omnibus Plan during the year was £3.33 (FY2017/18: £3.25), as determined by 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 £0.5 million (30 June 2018: £0.6 million) of which £nil (30 June 2018: £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:
|
|
2019 |
2018 |
|
Travel |
2.7 |
1.9 |
|
Professional fees |
5.6 |
4.2 |
|
Information technology and communications |
6.1 |
5.9 |
|
Amortisation of intangible assets (note 15) |
4.1 |
4.3 |
|
Operating leases |
2.7 |
2.6 |
|
Premises-related costs |
1.3 |
1.2 |
|
Insurance |
0.6 |
0.9 |
|
Auditor's remuneration (see below) |
0.8 |
0.5 |
|
Depreciation of property, plant and equipment (note 16) |
0.7 |
0.7 |
|
Consolidated funds (note 20d) |
3.3 |
1.1 |
|
Other expenses |
3.7 |
4.3 |
|
|
31.6 |
27.6 |
Auditor's remuneration
|
|
2019 |
2018 |
|
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 |
0.2 |
|
|
|
|
|
Fees for non-audit services: |
|
|
|
- Other non-audit services required by regulation |
0.1 |
- |
|
- Other assurance services |
0.1 |
- |
|
- Tax services |
0.1 |
0.1 |
|
|
0.8 |
0.5 |
12) Taxation
Analysis of tax charge for the year:
|
|
2019 |
2018 |
|
Current tax |
|
|
|
UK corporation tax on profits for the year |
36.3 |
30.3 |
|
Overseas corporation tax charge |
8.2 |
8.5 |
|
Adjustments in respect of prior years |
(2.7) |
(0.6) |
|
|
41.8 |
38.2 |
|
Deferred tax |
|
|
|
Origination and reversal of temporary differences (see note 18) |
(3.4) |
(1.7) |
|
Effect on deferred tax balance of changes in corporation tax rates |
- |
1.3 |
|
Tax expense |
38.4 |
37.8 |
Included in total tax for the year is £3.7 million tax charge related to seed capital items and foreign exchange gains recognised in the statement of comprehensive income.
Factors affecting tax charge for the year
|
|
2019 |
2018 |
|
Profit before tax |
219.9 |
191.3 |
|
|
|
|
|
Profit on ordinary activities multiplied by the UK tax rate of 19.00% (FY2017/18: 19.00%) |
41.8 |
36.3 |
|
|
|
|
|
Effects of: |
|
|
|
Non-deductible expenses |
0.3 |
0.1 |
|
Deduction in respect of vested shares/exercised options (Part 12, Corporation Tax Act 2009) |
(1.1) |
(0.3) |
|
Different rate of taxes on overseas profits |
1.5 |
1.2 |
|
Non-taxable income |
(0.3) |
(1.0) |
|
Effect on deferred tax balance of changes in corporation tax rates |
- |
2.0 |
|
Recognition of historical deferred tax assets |
(0.8) |
- |
|
Other items |
(0.3) |
0.1 |
|
Adjustments in respect of prior years |
(2.7) |
(0.6) |
|
Tax expense |
38.4 |
37.8 |
Non-taxable income relates to the impact of local tax exemptions on realised investment income in certain jurisdictions in which the
Group operates.
The tax charge recognised in reserves within other comprehensive income is as follows:
|
|
2019 |
2018 |
|
Current tax expense/(credit) on foreign exchange gains |
0.4 |
(0.3) |
|
Tax credit recognised in reserves |
0.4 |
(0.3) |
Finance (No. 2) Act 2015 introduced legislation to reduce the UK corporation tax rate to 19% from 1 April 2017. Finance Act 2016 further reduces the tax rate to 17% from 1 April 2020. These tax rate reductions have been taken into account in the calculation of the Group's UK deferred tax assets and liabilities as at 30 June 2019.
13) Earnings per share
Basic earnings per share at 30 June 2019 of 26.57 pence (30 June 2018: 22.59 pence) is calculated by dividing the profit after tax for the financial year attributable to equity holders of the parent of £178.6 million (FY2017/18: £151.4 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.
|
|
2019 |
2018 |
|
Weighted average number of ordinary shares used in the calculation of basic earnings per share |
672,361,489 |
671,063,954 |
|
Effect of dilutive potential ordinary shares - share awards |
41,007,535 |
40,645,005 |
|
Weighted average number of ordinary shares used in the calculation of diluted earnings per share |
713,369,024 |
711,708,959 |
14) Dividends
Dividends paid in the year
|
Company |
2019 |
2018 |
|
Final dividend for FY2017/18 - 12.10p (FY2016/17: 12.10p) |
86.0 |
85.4 |
|
Interim dividend for FY2018/19 - 4.55p (FY2017/18: 4.55p) |
32.3 |
32.0 |
|
|
118.3 |
117.4 |
In addition, the Group paid £2.4 million (FY2017/18: £2.5 million) of dividends to non-controlling interests.
Dividends declared/proposed in respect of the year
|
Company |
2019 |
2018 |
|
Interim dividend per share paid |
4.55 |
4.55 |
|
Final dividend per share proposed |
12.10 |
12.10 |
|
|
16.65 |
16.65 |
On 6 September 2019, the Board proposed a final dividend of 12.10 pence per share for the year ended 30 June 2019. 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 £86.2 million.
15) Goodwill and intangible assets
|
Group |
Goodwill |
Fund management intangible assets |
Total |
|
Cost (at original exchange rate) |
|
|
|
|
At 30 June 2017 and 30 June 2018 |
57.5 |
39.5 |
97.0 |
|
Acquisition of subsidiary (note 31) |
12.9 |
0.9 |
13.8 |
|
Fully amortised |
- |
(39.5) |
(39.5) |
|
At 30 June 2019 |
70.4 |
0.9 |
71.3 |
|
|
|
|
|
|
Accumulated amortisation and impairment |
|
|
|
|
At 30 June 2017 |
- |
(35.6) |
(35.6) |
|
Amortisation charge for the year |
- |
(4.3) |
(4.3) |
|
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) |
|
|
|
|
|
|
Net book value |
|
|
|
|
At 30 June 2017 |
71.6 |
8.3 |
79.9 |
|
Accumulated amortisation for the year |
- |
(4.3) |
(4.3) |
|
Foreign exchange revaluation through reserves* |
(1.3) |
(0.1) |
(1.4) |
|
At 30 June 2018 |
70.3 |
3.9 |
74.2 |
|
Acquisition of subsidiary (note 31) |
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 |
* 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 2018 and 2019 |
4.1 |
Goodwill
The Group's goodwill balance relates to the acquisition of subsidiaries. During the year the Group recognised goodwill of £12.9 million following the acquisition of Avenida Investments (Real Estate) LLP, subsequently renamed AshmoreAVENIDA. Additional information on the components of goodwill recognised is provided in note 31.
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 2019, 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, estimates of future cash flows and discount rates. The key assumption used to determine the recoverable amount is based on a fair value less costs to sell calculation using the Company's market share price.
Based on the calculation as at 30 June 2019, 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
The fund management relationships intangible asset relating to the US equities business was fully amortised during the year.
Intangible assets as at 30 June 2019 comprise fund management contracts and a contractually agreed share of carried interest recognised by the Group on the acquisition of AshmoreAVENIDA (see note 31). An annual impairment review was undertaken for the year ending 30 June 2019 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 2019. 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 two to six years.
16) Property, plant and equipment
|
Group |
2019 |
2018 |
|
Cost |
|
|
|
At the beginning of the year |
6.5 |
6.4 |
|
Additions |
0.9 |
0.2 |
|
Foreign exchange revaluation |
0.3 |
(0.1) |
|
At the end of the year |
7.7 |
6.5 |
|
|
|
|
|
Accumulated depreciation |
|
|
|
At the beginning of the year |
5.4 |
4.8 |
|
Depreciation charge for the year |
0.7 |
0.7 |
|
Foreign exchange revaluation |
0.1 |
(0.1) |
|
At the end of the year |
6.2 |
5.4 |
|
Net book value at 30 June |
1.5 |
1.1 |
|
Company |
2019 |
2018 |
|
Cost |
|
|
|
At the beginning of the year |
3.9 |
3.7 |
|
Additions |
0.3 |
0.2 |
|
At the end of the year |
4.2 |
3.9 |
|
|
|
|
|
Accumulated depreciation |
|
|
|
At the beginning of the year |
3.4 |
3.0 |
|
Depreciation charge for year |
0.3 |
0.4 |
|
At the end of the year |
3.7 |
3.4 |
|
Net book value at 30 June |
0.5 |
0.5 |
17) Trade and other receivables
|
|
Group |
Company |
||
|
|
2019 |
2018 |
2019 |
2018 |
|
Current |
|
|
|
|
|
Trade debtors |
73.9 |
67.5 |
3.7 |
5.0 |
|
Prepayments |
4.1 |
2.8 |
1.3 |
1.2 |
|
Loans due from subsidiaries |
- |
- |
471.9 |
454.5 |
|
Amounts due from subsidiaries |
- |
- |
17.7 |
7.1 |
|
Other receivables |
1.4 |
0.9 |
0.4 |
0.1 |
|
Total trade and other receivables |
79.4 |
71.2 |
495.0 |
467.9 |
Group trade debtors include accrued management and performance fees in respect of investment management services provided up to 30 June 2019. 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 £4.3 million as at 30 June 2019 (30 June 2018: £3.3 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 2019, no balances are past due and no impairment is recognised under the IFRS 9 expected credit loss model (30 June 2018: no balances past due and no impairment recognised).
Loans and amounts due from subsidiaries for the Company include intercompany loans related to seed capital investments held by subsidiaries and trading balances. The loans are repayable over a term of up to 10 years. Trading balances 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 2019, no balances are past due and no impairment is recognised (30 June 2018: no balances past due and no impairment recognised).
18) Deferred taxation
Deferred tax assets and liabilities recognised by the Group and Company at year end are attributable to the following:
|
|
2019 |
2018 |
||||
|
Group |
Other temporary differences |
Share-based payments |
Total |
Other temporary differences |
Share-based payments |
Total |
|
Deferred tax assets |
12.0 |
18.2 |
30.2 |
11.4 |
14.8 |
26.2 |
|
Deferred tax liabilities |
(8.4) |
- |
(8.4) |
(7.7) |
- |
(7.7) |
|
|
3.6 |
18.2 |
21.8 |
3.7 |
14.8 |
18.5 |
|
|
|
|
|
|
|
|
|
|
2019 |
2018 |
||||
|
Company |
Other temporary differences |
Share-based payments |
Total |
Other temporary differences |
Share-based payments |
Total |
|
Deferred tax assets |
0.3 |
16.3 |
16.6 |
0.2 |
12.8 |
13.0 |
Movement of deferred tax balances
The movement in the deferred tax balances between the balance sheet dates has been reflected in equity or the statement of comprehensive income as follows:
|
Group |
Other temporary differences |
Share-based payments |
Total |
|
At 30 June 2017 |
4.2 |
14.0 |
18.2 |
|
Credited/(charged) to the consolidated statement of comprehensive income |
(0.5) |
0.8 |
0.3 |
|
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 |
|
|
|
|
|
|
Company |
Other temporary differences |
Share-based payments |
Total |
|
At 30 June 2017 |
0.2 |
11.3 |
11.5 |
|
Credited/(charged) to the statement of comprehensive income |
- |
1.5 |
1.5 |
|
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 |
Refer to the details in note 12 in relation to future 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:
|
|
2019 |
2018 |
||||||
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
|
Financial assets |
|
|
|
|
|
|
|
|
|
Investment securities |
170.4 |
35.8 |
72.5 |
278.7 |
110.6 |
38.8 |
69.7 |
219.1 |
|
Non-current assets held for sale |
- |
44.7 |
- |
44.7 |
- |
7.6 |
- |
7.6 |
|
Available-for-sale financial assets |
- |
- |
- |
- |
- |
- |
5.6 |
5.6 |
|
Financial assets measured at FVTPL |
- |
14.4 |
1.6 |
16.0 |
- |
23.5 |
- |
23.5 |
|
Non-current financial assets at fair value |
- |
- |
31.6 |
31.6 |
- |
20.0 |
23.9 |
43.9 |
|
|
170.4 |
94.9 |
105.7 |
371.0 |
110.6 |
89.9 |
99.2 |
299.7 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
Third-party interests in consolidated funds |
70.6 |
12.6 |
23.8 |
107.0 |
25.8 |
17.6 |
32.7 |
76.1 |
|
Derivative financial instruments |
- |
1.1 |
- |
1.1 |
- |
0.1 |
- |
0.1 |
|
Non-current liabilities held for sale |
- |
- |
- |
- |
- |
0.8 |
- |
0.8 |
|
|
70.6 |
13.7 |
23.8 |
108.1 |
25.8 |
18.5 |
32.7 |
77.0 |
Available-for-sale financial assets with a carrying value of £5.6m were reclassified to the FVTPL category on the application of IFRS 9 with effect from 1 July 2018. The available-for-sale category is no longer allowable under IFRS 9.
Transfers between level 3 and level 1
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. During the year, the Group reclassified listed equity securities with a carrying value of £16.5 million from level 3 into level 1 as the fair value was determined based on quoted market prices without adjustment.
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 2019 and 2018:
|
|
Investment securities |
Financial |
Available- |
Non-current financial assets at fair value £m |
Third-party interests in consolidated funds |
|
At 30 June 2017 |
84.9 |
- |
11.2 |
18.0 |
35.6 |
|
Additions/(disposals) |
(13.0) |
- |
(4.9) |
4.1 |
(0.6) |
|
Unrealised gains/(losses) recognised in profit or loss |
(1.3) |
- |
- |
1.8 |
(2.3) |
|
Unrealised gains/(losses) recognised in other comprehensive income |
(0.9) |
- |
(0.7) |
- |
- |
|
At 30 June 2018 |
69.7 |
- |
5.6 |
23.9 |
32.7 |
|
Reclassification on adoption of IFRS 9 (note 3) |
- |
5.6 |
(5.6) |
- |
- |
|
Additions/(disposals) |
13.6 |
(2.2) |
- |
8.5 |
2.0 |
|
Transfers to level 1 |
(16.5) |
- |
|
- |
(8.3) |
|
Unrealised gains/(losses) recognised in profit or loss |
1.3 |
(1.8) |
- |
(0.8) |
(2.6) |
|
Unrealised gains/(losses) recognised in other comprehensive income |
4.4 |
- |
- |
- |
- |
|
At 30 June 2019 |
72.5 |
1.6 |
- |
31.6 |
23.8 |
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. Further details on the estimates and judgements applied by the Group are provided in note 33.
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 2019 and 2018, and the associated sensitivity to changes in unobservable inputs to a reasonable alternative.
|
Asset class and valuation technique |
2019 Fair value |
Significant unobservable input |
Range of estimates |
Sensitivity factor |
Change in fair value £m |
|
Unquoted securities |
|
|
|
|
|
|
Market approach using comparable |
32.6 |
EBITDA multiple |
10x-20x |
+/- 1x |
+/- £0.9 |
|
Marketability adjustment |
10%-30% |
+/- 5% |
-/+ £0.8 |
||
|
Market multiple, break up basis (80:20) |
10.0 |
Market multiple |
5x-10x |
+/- 1x |
+/- £1.2 |
|
Marketability adjustment |
10%-20% |
+/- 5% |
-/+ £0.6 |
||
|
Market multiple, discounted cash flows (75:25) |
26.2 |
Market multiple |
5x-10x |
+/- 1x |
+/- £1.8 |
|
WACC |
10%-20% |
n/a* |
|
||
|
Adjusted value, broker quotes |
3.1 |
Marketability adjustment |
20%-35% |
+/- 5% |
-/+ £0.2 |
|
Unquoted funds |
|
|
|
|
|
|
Net assets approach |
33.8 |
NAV |
1 times |
+/- 5% |
+/- £1.7 |
|
Total level 3 investments |
105.7 |
|
|
|
|
|
Asset class and valuation technique |
2018 Fair value |
Significant unobservable input |
Range of estimates |
Sensitivity factor |
Change in fair value £m |
|
Quoted securities |
|
|
|
|
|
|
Adjusted market value |
15.4 |
Marketability adjustment |
10%-30% |
+/- 5% |
-/+ £0.9 |
|
Unquoted securities |
|
|
|
|
|
|
Market approach using comparable |
23.4 |
EBITDA multiple |
5x-10x |
+/- 1x |
+/- £1.5 |
|
Marketability adjustment |
10%-30% |
+/- 5% |
-/+ £1.2 |
||
|
Recent transaction, market multiple, discounted cash flows (40:30:30) |
27.4 |
Market multiple |
5x-10x |
+/- 1x |
+/- £0.9 |
|
WACC |
10%-20% |
n/a* |
|
||
|
Adjusted value, broker quotes |
3.2 |
Marketability adjustment |
20%-35% |
+/- 5% |
-/+ £0.2 |
|
Unquoted funds |
|
|
|
|
|
|
Net assets approach |
29.8 |
NAV |
1 times |
+/- 5% |
+/- £1.5 |
|
Total level 3 investments |
99.2 |
|
|
|
|
*Given the number of different factors affecting the estimate, specific sensitivity analysis cannot be reliably quantified.
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 have not be 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 2019 and 2018.
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 |
HFS investments |
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 2017 |
7.1 |
11.3 |
36.0 |
231.2 |
11.0 |
(108.9) |
22.5 |
210.2 |
|
Reclassification: |
|
|
|
|
|
|
|
|
|
HFS investments to consolidated funds |
(15.1) |
- |
- |
24.9 |
- |
(9.8) |
- |
- |
|
Consolidated funds to FVTPL |
- |
- |
8.2 |
(16.6) |
- |
8.4 |
- |
- |
|
Net purchases, disposals and fair value changes |
14.8 |
(5.7) |
(20.7) |
(20.4) |
(5.5) |
34.2 |
21.4 |
18.1 |
|
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 (note 3) |
- |
(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 |
* Investment securities in consolidated funds are designated as 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 £2.7 million, redemptions of £10.3 million and fair value movements of £2.2 million 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, four funds (FY2017/18: two) 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 2019 were as follows:
|
|
2019 |
2018 |
|
Non-current financial assets held for sale |
44.7 |
7.6 |
|
Non-current financial liabilities held for sale |
- |
(0.8) |
|
Non-current assets held for sale |
44.7 |
6.8 |
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 designated as FVTPL. No such fund was transferred to the FVTPL category during the year (FY2017/18: 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, two such funds (FY2017/18: two) with an aggregate carrying amount of £10.9 million (FY2017/18: £15.1 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 £3.2 million (FY2017/18: gains of £0.4 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 2019 comprise shares held in debt and equity funds as follows:
|
|
2019 |
2018 |
|
Equity funds |
4.8 |
14.5 |
|
Debt funds |
11.2 |
9.0 |
|
Financial assets measured at fair value |
16.0 |
23.5 |
Included within finance income are gains of £0.3 million (FY2017/18: gains of £1.3 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 designated as 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.
|
|
2019 |
2018 |
|
Real estate funds |
4.9 |
1.5 |
|
Infrastructure funds |
17.8 |
15.7 |
|
Other funds |
8.9 |
26.7 |
|
Non-current financial assets measured at fair value |
31.6 |
43.9 |
Included within finance income are gains of £0.7 million (FY2017/18: gains of £2.8 million) on the Group's non-current asset investments.
d) Consolidated funds
The Group has consolidated 13 investment funds as at 30 June 2019 (30 June 2018: 11 investment funds), over which the Group is deemed to have control (refer to note 26). 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.
|
|
2019 |
2018 |
|
Investment securities* |
278.7 |
219.1 |
|
Cash and cash equivalents |
14.1 |
6.2 |
|
Other** |
(0.3) |
(0.7) |
|
Third-party interests in consolidated funds |
(107.0) |
(76.1) |
|
Consolidated seed capital investments |
185.5 |
148.5 |
* Investment securities represent trading securities held by consolidated investment funds and are designated as at FVTPL. Note 26 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 gains of £6.5 million (FY2017/18: £4.6 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:
|
|
2019 |
2018 |
|
Interest and dividend income |
5.5 |
5.1 |
|
Gains/(losses) on investment securities |
0.5 |
3.0 |
|
Change in third-party interests in consolidated funds |
3.8 |
(2.4) |
|
Other expenses |
(3.3) |
(1.1) |
|
Net gains on consolidated funds |
6.5 |
4.6 |
Included in the Group's cash generated from operations is £3.1 million cash utilised in operations (FY2017/18: £3.5 million cash utilised in operations) relating to consolidated funds.
As of 30 June 2019, 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 as discussed in the Risk management section. 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 £557.6 million as at 30 June 2019 (30 June 2018: excess capital of £479.7 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 |
2019 |
2018 |
|
Investment securities |
19 |
278.7 |
219.1 |
|
Non-current financial assets held for sale |
19 |
44.7 |
7.6 |
|
Available-for-sale financial assets |
19 |
- |
5.6 |
|
Financial assets measured at fair value |
19 |
16.0 |
23.5 |
|
Trade and other receivables |
17 |
79.4 |
71.2 |
|
Cash and cash equivalents |
|
477.2 |
433.0 |
|
Total |
|
896.0 |
760.0 |
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 is 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 2019 (30 June 2018: A+ to AA-).
All trade and other receivables are considered to be fully recoverable and none were overdue at year end (30 June 2018: 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 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 |
At 30 June 2018
|
|
Within 1 year |
1-5 years |
More than |
Total |
|
Non-current liabilities held-for-sale |
0.8 |
- |
- |
0.8 |
|
Third-party interests in consolidated funds |
33.2 |
42.9 |
- |
76.1 |
|
Derivative financial instruments |
0.1 |
- |
- |
0.1 |
|
Current trade and other payables |
57.3 |
- |
- |
57.3 |
|
|
91.4 |
42.9 |
- |
134.3 |
Details of leases and other commitments are provided in note 30.
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
|
|
2019 |
2018 |
|
Deposits with banks and liquidity funds |
1.69 |
1.04 |
Deposits with banks and liquidity funds are repriced at intervals of less than one year.
At 30 June 2019, 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 £2.3 million higher/lower (FY2017/18: £2.2 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 and the Euro, net of hedging activities.
|
|
2019 |
2018 |
||
|
Foreign currency sensitivity test |
Impact on profit |
Impact on equity |
Impact on profit |
Impact on equity |
|
US dollar +/- 1% |
0.8 |
4.4 |
1.4 |
2.6 |
|
Euro +/- 1% |
0.1 |
0.1 |
0.1 |
0.1 |
|
Colombian peso +/- 1% |
0.1 |
0.1 |
0.2 |
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 2019, a 5% movement in the fair value of these investments would have a £13.9 million (FY2017/18: £11.4 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$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 (FY2017/18: using the year end AuM level of US$73.9 billion and applying the year's average net management fee rate of 49bps, a 5% movement in AuM would have a US$18.1 million impact, equivalent to £13.7 million using year end exchange rate of 1.3200, 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 2019, 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 2019 was £0.7 million (30 June 2018: £0.1 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:
|
|
2019 |
2018 |
||
|
|
Notional amount |
Fair value assets/ |
Notional amount |
Fair value assets/ |
|
Cash flow hedges |
|
|
|
|
|
Foreign exchange nil-cost option collars |
160.0 |
(0.7) |
70.0 |
(0.1) |
|
|
160.0 |
(0.7) |
70.0 |
(0.1) |
The maturity profile of the Group's outstanding hedges is shown below.
|
Notional amount of option collars maturing: |
2019 |
2018 |
|
Within 6 months |
60.0 |
70.0 |
|
Between 6 and 12 months |
60.0 |
- |
|
Later than 12 months |
40.0 |
- |
|
|
160.0 |
70.0 |
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.
No intrinsic gain/loss (FY2017/18: £0.2 million intrinsic gain) on the Group's hedges has been recognised through other comprehensive
income and £0.9 million intrinsic value gain (FY2017/18: £1.2 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 £5.1 million (note 7) recognised at 30 June 2019 (£1.8 million gain at 30 June 2018) are:
- a £0.3 million gain in respect of foreign exchange hedges covering net management fee income for the financial year ending 30 June 2019 (FY2017/18: £0.6 million gain in respect of foreign exchange hedges covering net management fee income for the financial year ended 30 June 2018); and
- a £4.8 million gain in respect of crystallised foreign exchange contracts (FY2017/18: £1.2 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:
|
|
|
2019 |
2018 |
|
Cash and cash equivalents |
|
150.3 |
159.2 |
|
Trade and other receivables |
|
495.0 |
467.9 |
|
Total |
|
645.3 |
627.1 |
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 2019 (30 June 2018: A+ to AA-).
All trade and other receivables are considered to be fully recoverable and none were overdue at year end (30 June 2018: none).
Liquidity risk
The contractual undiscounted cash flows relating to the Company's financial liabilities all fall due within one year.
Details on leases and other commitments are provided in note 30.
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
|
|
2019 |
2018 |
|
Deposits with banks and liquidity funds |
0.84 |
0.67 |
Deposits with banks and liquidity funds are repriced at intervals of less than one year.
At 30 June 2019, 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 £0.8 million higher/lower (FY2017/18: £1.6 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 2019, 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 £4.9 million (FY2017/18: increased/decreased by £4.8 million).
22) Share capital
Authorised share capital
|
Group and Company |
2019 |
2019 |
2018 |
2018 |
|
Ordinary shares of 0.01p each |
900,000,000 |
90 |
900,000,000 |
90 |
Issued share capital - allotted and fully paid
|
Group and Company |
2019 |
2019 |
2018 |
2018 |
|
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 2019, there were equity-settled share awards issued under the Omnibus Plan totalling 40,668,934 (30 June 2018: 40,470,000) shares that have release dates ranging from September 2019 to September 2023. 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 2019, the EBT owned 40,355,103 (30 June 2018: 36,679,643) ordinary shares of 0.01p with a nominal value of £4,036 (30 June 2018: £3,668) and shareholders' funds are reduced by £119.1 million (30 June 2018: £112.4 million) in this respect. The EBT is periodically funded by the Company for these purposes.
24) Treasury shares
During the year, the Company transferred 5,368,331 treasury shares with a cost value of £6.9 million to the EBT. The Company did not hold treasury shares as at 30 June 2019 (30 June 2018: the Company held 5,368,331 treasury shares with a market value of £20.0 million).
25) Trade and other payables
|
|
Group |
Group |
Company |
Company |
|
Current |
|
|
|
|
|
Trade payables |
22.1 |
23.4 |
1.6 |
3.4 |
|
Accruals and provisions |
34.0 |
33.9 |
29.3 |
25.8 |
|
Amounts due to subsidiaries |
- |
- |
7.3 |
46.8 |
|
Total trade and other payables |
56.1 |
57.3 |
38.2 |
76.0 |
26) 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 |
2019 |
2018 |
|
Cost |
|
|
|
At 30 June 2018 and 30 June 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 2019. A full list of the Group's subsidiaries and all related undertakings is disclosed in note 34.
|
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 |
Indonesia |
66.67 |
|
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 |
90.00 |
|
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 13 investment funds as at 30 June 2019 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 Distressed Debt Fund |
Corporate debt |
Guernsey |
40.55 |
|
Ashmore Emerging Markets Debt and Currency Fund Limited |
Blended debt |
Guernsey |
100.00 |
|
Ashmore SICAV Emerging Markets Equity Fund |
Equity |
Luxembourg |
90.09 |
|
Ashmore SICAV EM Active Equity Fund |
Equity |
Luxembourg |
44.64 |
|
Ashmore SICAV EM Indonesian Equity Fund |
Equity |
Luxembourg |
100.00 |
|
Ashmore SICAV 2 Global Bond Fund |
Local currency |
Luxembourg |
100.00 |
|
Ashmore SICAV Multi Asset Fund |
Multi-asset |
Luxembourg |
53.43 |
|
Ashmore SICAV Investment Grade Total Return Fund |
Blended debt |
Luxembourg |
69.51 |
|
Ashmore SICAV Global Small-Cap Equity Fund |
Equity |
Luxembourg |
44.43 |
|
Ashmore Saudi Equity Fund |
Equity |
Saudi Arabia |
64.18 |
|
Ashmore Emerging Markets Equity Fund |
Equity |
USA |
81.78 |
|
Ashmore Emerging Markets Active Equity Fund |
Equity |
USA |
88.72 |
27) Interests in associates and joint ventures
The Group held interests in the following associates and jointly controlled entities as at 30 June 2019 that are unlisted:
|
Name |
Type |
Nature of business |
Country of incorporation/ |
% of equity shares held by the Group |
|
VTB-Ashmore Capital Holdings Limited |
Associate |
Investment management |
Russia |
50% |
|
Everbright Ashmore* |
Associate |
Investment management |
China |
30% |
|
Ashmore Investment Management India LLP |
Associate |
Investment management |
India |
30% |
|
Taiping Fund Management Company |
Associate |
Investment management |
China |
8.5% |
|
Mesa Capital Advisors LLC** |
Joint venture |
Investment management |
Colombia |
50% |
* Everbright Ashmore associate entities are in process of liquidation.
** Mesa Capital Advisors LLC is a 50% joint venture in a capital raising and placement business acquired as part of AshmoreAVENIDA (see note 31).
Movements in investments in associates and joint ventures during the year were as follows:
|
Associates and joint ventures |
2019 £m |
2018 £m |
|
At the beginning of the year |
1.7 |
2.3 |
|
Additions/(disposals) |
0.4 |
- |
|
Share of profit/(loss) |
(0.3) |
(0.4) |
|
Distributions |
- |
(0.2) |
|
At the end of the year |
1.8 |
1.7 |
The summarised aggregate financial information is shown below.
|
Associates and joint ventures |
2019 |
2018 |
|
Total assets |
23.7 |
25.4 |
|
Total liabilities |
(9.1) |
(5.7) |
|
Net assets |
14.6 |
19.7 |
|
Group's share of net assets |
2.1 |
2.2 |
|
Revenue for the year |
9.2 |
10.9 |
|
Profit/(loss) for the year |
(1.3) |
(3.2) |
|
Group's share of profit/(loss) for the year |
(0.3) |
(0.4) |
The carrying value of the investments in associates and joint ventures 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 and joint ventures as at 30 June 2019. The Group had no undrawn capital commitments (30 June 2018: £5.0 million) to investment funds managed by the associates.
28) 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 2018 |
73.9 |
0.3 |
73.6 |
|
30 June 2019 |
91.8 |
0.4 |
91.4 |
Included in the Group's consolidated management fees of £307.6 million (FY2017/18: £259.7 million) are management fees amounting to £305.1 million (FY2017/18: £258.0 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.
|
|
2019 |
2018 |
|
Management fees receivable |
46.4 |
38.3 |
|
Trade and other receivables |
1.7 |
0.5 |
|
Seed capital investments |
92.3 |
79.8 |
|
Total exposure |
140.4 |
118.6 |
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.
The Group has undrawn investment commitments relating to structured entities as follows:
|
|
2019 |
2018 |
|
AA Development Capital India Fund 1 LLC |
- |
1.2 |
|
Ashmore Andean Fund II, LP |
0.5 |
1.4 |
|
Ashmore Avenida Colombia Real Estate Fund I (Cayman) LP |
0.3 |
- |
|
Ashmore Emerging Markets Corporate Private Debt Fund |
- |
0.3 |
|
Ashmore I - CAF Colombian Infrastructure Senior Debt Fund |
12.7 |
13.8 |
|
Ashmore Special Opportunities Fund LP |
7.7 |
9.0 |
|
Everbright Ashmore China Real Estate Fund |
- |
1.4 |
|
KCH Healthcare LLC |
- |
1.8 |
|
VTBC-Ashmore Real Estate Partners I, LP |
- |
3.6 |
|
Total undrawn investment commitments |
21.2 |
32.5 |
29) 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:
|
|
2019 |
2018 |
|
Short-term benefits |
1.7 |
1.7 |
|
Defined contribution pension costs |
- |
- |
|
Share-based payment benefits |
1.6 |
1.2 |
|
|
3.3 |
2.9 |
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 (FY2017/18: none). Aggregate key management personnel interests in consolidated funds at 30 June 2019 were £44.6 million (30 June 2018: £37.8 million).
Transactions with subsidiaries - Company
Details of transactions between the Company and its subsidiaries are shown below:
|
|
2019 |
2018 |
|
Transactions during the year |
|
|
|
Management fees |
77.1 |
81.9 |
|
Net dividends |
174.4 |
118.4 |
|
Loans advanced to/(repaid by) subsidiaries |
8.1 |
100.4 |
Amounts receivable or payable to subsidiaries are disclosed in notes 17 and 25 respectively.
Transactions with Ashmore Funds - Group
During the year, the Group received £158.9 million of gross management fees and performance fees (FY2017/18: £133.0 million) from the
109 funds (FY2017/18: 91 funds) it manages and which are classified as related parties. As at 30 June 2019, the Group had receivables due
from funds of £6.7 million (30 June 2018: £5.5 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 2019, the loan outstanding was £106.3 million (30 June 2018: £102.7 million).
Transaction 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 (FY2017/18: £0.1 million).
30) Commitments
Operating lease commitments
The Group and Company have entered into certain property leases. The future aggregate minimum lease payments under non-cancellable operating leases, taking account of escalation clauses and renewal options, fall due as follows:
Group
|
|
2019 |
2018 |
|
Within 1 year |
2.5 |
2.5 |
|
Between 1 and 5 years |
8.7 |
3.5 |
|
Later than 5 years |
2.6 |
2.3 |
|
|
13.8 |
8.3 |
Company
|
|
2019 |
2018 |
|
Within 1 year |
1.3 |
0.9 |
|
Between 1 and 5 years |
5.2 |
- |
|
Later than 5 years |
1.0 |
- |
|
|
7.5 |
0.9 |
Operating lease expenses are disclosed in note 11.
Company
The Company has undrawn loan commitments to other Group entities totalling £276.6 million (30 June 2018: £53.2 million) to support their investment activities but has no investment commitments of its own (30 June 2018: none).
31) Acquisition of subsidiary
On 18 July 2018, the Group acquired a 56% controlling interest in Avenida Investments (Real Estate) LLP (renamed AshmoreAVENIDA), the holding company of a Colombian real estate investment management firm, for a total consideration of £11.0 million.
The acquisition of AshmoreAVENIDA has enhanced the Group's local presence in Latin America and contributed additional AuM of US$300 million as at the acquisition date. The acquisition has provided Ashmore with the track record, commercial network and expertise necessary to develop the Group's real estate products across Latin America by creating a regional real estate franchise with a focus in key markets in Colombia, Peru, Chile and Central America. Over time, the Group plans to develop additional real estate operations in other Emerging Markets.
Since completion of the acquisition, the business has contributed net revenue of £4.5 million and net profit of £1.4 million to the Group results.
Consideration transferred
The total purchase consideration paid on acquisition is summarised below:
|
|
|
|
£m |
|
Total purchase consideration |
|
|
11.0 |
|
Adjustment to purchase price |
|
|
(0.6) |
|
Total consideration transferred |
|
|
10.4 |
|
Settled as follows: |
|
|
|
|
Cash paid |
|
|
5.2 |
|
Ordinary shares of Ashmore Group plc allotted |
|
|
5.2 |
|
Total |
|
|
10.4 |
The Group allotted 1.4 million ordinary shares of Ashmore Group plc to former owners of AshmoreAVENIDA as part settlement of the purchase consideration. The fair value of the ordinary shares was based on the average closing share price of Ashmore Group plc for the five business days to 18 July 2018 of £3.58 per share.
Purchase consideration - cash outflow
Below is the reconciliation of the outflow of cash to acquire the subsidiary, net of cash acquired.
|
|
|
|
£m |
|
Cash consideration |
|
|
5.2 |
|
Less: Cash balances acquired |
|
|
(0.3) |
|
Net outflow of cash - investing activities |
|
|
4.9 |
Acquisition-related costs
The Group incurred acquisition-related costs of £0.6 million on legal fees and due diligence on the transaction that have been expensed to profit and loss, of which £0.3 million is included in the current period results within other expenses.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired and liabilities assumed at the date of acquisition.
|
|
|
|
£m |
|
Property, plant and equipment |
|
|
0.1 |
|
Intangible assets |
|
|
0.9 |
|
Net investment in joint venture |
|
|
0.4 |
|
Financial assets |
|
|
5.3 |
|
Trade and other receivables |
|
|
0.3 |
|
Cash and cash equivalents |
|
|
0.3 |
|
Trade and other payables |
|
|
(0.8) |
|
Total identifiable net assets acquired |
|
|
6.5 |
The valuation techniques used for measuring the fair value of material identifiable assets acquired are as follows:
- Intangible assets reflect the discounted value of management contracts in relation to closed-ended funds and projects, and a contractually agreed share of carried interest expected to be received from the funds. The discounted cash flow model takes account of expected revenues based on contractual rates and net asset value of the funds managed as at the date of acquisition. Carried interest cash flow estimates are based on an assessment of the stage of the fund life cycle, fund term, and projected returns based on historical experience of exited portfolio assets, as well as taking into account forward-looking information regarding the prospects of the remaining portfolio assets. The discount rate applied is based on the Group's weighted average cost of capital, adjusted for risk factors such as country risk, foreign exchange and the nature of the specific cash flows. Additional information on impairment review is provided in note 15.
- Net investment in joint venture represents the fair value of AshmoreAVENIDA's investment in Mesa Capital Advisors LLC, a 50% joint venture in a capital raising and placement company. Fair value is determined as the recoverable value of the investment as at the date of acquisition, based on selling price in the ordinary course of business less estimated selling costs.
- Financial assets represent the fair value of the acquired seed capital investments in two closed-ended funds managed by AshmoreAVENIDA as at the date of acquisition. Fair value is estimated with reference to the proportionate net asset value of the fund as at the date of acquisition. Net asset value is calculated with reference to valuations carried out by independent valuation experts.
The impact on deferred tax related to recognised intangible assets is immaterial.
Goodwill
Goodwill arising from the acquisition of AshmoreAVENIDA has been recognised as follows:
|
|
|
|
£m |
|
Consideration transferred |
|
|
10.4 |
|
Non-controlling interest, based on fair value |
|
|
9.0 |
|
Fair value of identifiable net assets |
|
|
(6.5) |
|
Goodwill |
|
|
12.9 |
The goodwill is primarily attributed to the future economic benefits expected from other assets acquired that are not individually identified and separately recognised under the recognition principles of IFRS 3 Business Combinations. The value of these assets has been subsumed into goodwill and include the workforce, the founders' commercial network and track record, expertise in Latin America real estate investment management, and the growth potential expected to be achieved by integrating AshmoreAVENIDA's operations into the Group's existing platform. The Group plans to expand its real estate capabilities from utilising AshmoreAVENIDA's local presence and expertise in Latin America, together with benefiting from its well-established processes on origination, due diligence, underwriting, structuring, ESG framework, and capital raising and project management capabilities.
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 and the Group elected to recognise the NCI in AshmoreAVENIDA at fair value. Set out below is summarised financial information for AshmoreAVENIDA that has material NCI to the Group. The amounts disclosed are before intercompany eliminations.
|
Summarised balance sheet |
2019 |
|
Total assets |
7.0 |
|
Total liabilities |
(0.5) |
|
Net assets |
6.5 |
|
Accumulated NCI |
9.0 |
|
|
|
|
Summarised statement of comprehensive income |
|
|
Net revenue |
4.5 |
|
Profit for the period |
1.4 |
|
Other comprehensive income |
0.2 |
|
Total comprehensive income |
1.6 |
|
Profit allocated to NCI |
0.5 |
|
Dividends paid to NCI |
0.5 |
|
|
|
|
Summarised cash flows |
|
|
Cash flows from operating activities |
0.7 |
|
Cash flows from investing activities |
0.2 |
|
Cash flows from financing activities |
(0.5) |
|
Net increase in cash and cash equivalents |
0.4 |
32) Post-balance sheet events
There are no post balance sheet events that require adjustment or disclosure in the Group consolidated financial statements.
33) 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 2019, approximately 10% 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 2015.
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 (WACC), 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, WACC 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. Further details on the valuation methodologies applied by the Group in the valuation of level 3 investments as at 30 June 2019 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.
34) Subsidiaries and related undertakings
The following is a full list of the Ashmore Group plc subsidiaries and related undertakings as at 30 June 2019. The list includes significant holdings greater than 20% interest, comprising associate undertakings, joint ventures and significant holdings in Ashmore sponsored public funds in which the Group has invested seed capital:
|
Name |
Classification |
% interest |
Registered address |
|
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 |
|
|
Ashmore Investment Management (Singapore) Pte. Ltd. |
Subsidiary |
100.00 |
1 George Street |
|
PT Ashmore Asset Management Indonesia |
Subsidiary |
66.67 |
Pacific Century Place 18th Floor, SCBD Lot 10 Jl. Jenderal. Sudirman Kav.52-53 |
|
Ashmore Management Company Colombia SAS |
Subsidiary |
61.38 |
Carrera 7 No. 75 -66, Office 702 Bogotá, Colombia |
|
Ashmore-CAF-AM Management Company SAS |
Subsidiary |
53.66 |
|
|
Ashmore Investment Advisors Colombia S.A. Sociedad Fiduciaria |
Subsidiary |
100.00 |
|
|
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 |
|
Ashmore Management (DIFC ) Limited |
Subsidiary |
100.00 |
Office 105, Gate Village 03, Level 1 Dubai International Financial Centre Dubai, UAE |
|
AA Indian Development Capital Advisors Private Limited (in liquidation) |
Subsidiary |
100.00 |
507A Kakad Chambers |
|
Ashmore Investment Advisors (India) Private Limited |
Subsidiary |
99.82 |
|
|
Ashmore-Centrum India Opportunities Investment Advisers Private Limited (in liquidation) |
Subsidiary |
51.00 |
|
|
Ashmore-Centrum Funds Trustee Company Private Limited |
Subsidiary |
51.00 |
|
|
Ashmore Investment Saudi Arabia |
Subsidiary |
90.00 |
3rd Floor Tower B |
|
Ashmore Saudi Equity Fund |
Consolidated fund |
64.18 |
|
|
AA Development Capital Investment Managers (Mauritius) LLC |
Subsidiary |
55.00 |
Les Cascades Building |
|
Ashmore Investments (Holdings) Limited |
Subsidiary |
100.00 |
|
Name |
Classification |
% interest |
Registered address |
|
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 Distressed Debt Fund |
Consolidated fund |
40.55 |
|
|
Ashmore Emerging Markets Debt and Currency Fund Limited |
Consolidated fund |
100.00 |
|
|
Ashmore SICAV EM Global Small-Cap Equity Fund |
Consolidated fund |
44.43 |
6 rue Lou Hemmer |
|
Ashmore SICAV 2 Global Bond Fund |
Consolidated fund |
100.00 |
|
|
Ashmore SICAV Multi-Asset Fund |
Consolidated fund |
53.43 |
|
|
Ashmore SICAV Active Equity Fund |
Consolidated fund |
44.64 |
|
|
Ashmore SICAV Emerging Markets Equity Fund |
Consolidated fund |
90.09 |
|
|
Ashmore SICAV EM Indonesian Equity Fund |
Consolidated fund |
100.00 |
|
|
Ashmore SICAV Investment Grade Total Return Fund |
Consolidated fund |
69.51 |
|
|
Ashmore SICAV EM Absolute Return Debt Fund |
Significant holding |
27.81 |
|
|
Ashmore Emerging Markets Equity Fund |
Consolidated fund |
81.78 |
50 South LaSalle Street Chicago, Illinois 60603 |
|
Ashmore Emerging Markets Active Equity Fund |
Consolidated fund |
88.72 |
|
|
Everbright Ashmore Services and Consulting Limited (in liquidation) |
Associate |
30.00 |
c/o Appleby Trust (Cayman) Ltd., |
|
EA Team Investment Partners Limited (in liquidation) |
Associate |
30.00 |
|
|
Everbright Ashmore Real Estate Partners Limited (in liquidation) |
Associate |
30.00 |
190 Elgin Avenue, George Town, |
|
Everbright Ashmore Investment Management Limited (in liquidation) |
Associate |
30.00 |
|
|
Ashmore Investment Management India LLP (in liquidation) |
Associate |
30.00 |
507A Kakad Chambers Dr Annie Besant Road Worli, Mumbai 400 018, India |
|
VTB-Ashmore Capital Holdings Limited |
Associate |
50.00 |
Trafalgar Court |
|
VTBC-Ashmore Investment Management Limited |
Associate |
50.00 |
|
|
VTBC-Ashmore Partnership Management 1 Limited |
Associate |
50.00 |
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
The financial information set out above does not constitute the Group's statutory accounts for the years ending 30 June 2019 or 30 June 2018. Statutory accounts for 2018 have been delivered to the registrar of companies, and those for 2019 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2018 or 2019.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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