Interim Results

RNS Number : 9599D

Polar Capital Holdings PLC

11 December 2009

 



11 December 2009 

POLAR CAPITAL HOLDINGS plc ("Polar Capital" or "the Company")

Interim results for the six months ended 30 September 2009

Financial Highlights

• Assets under management ("AUM") at 30 September 2009 up 27% at US$1.9bn compared to US$1.5bn at 30 March 2009 (30 September 2008: US$2.9bn)

• Loss before tax and share-based payments of £0.4m (30 September 2008: profit £1.5m)

• Basic loss per share of 0.62p (30 September 2008: earnings per share of 0.59p) and adjusted* diluted loss per share of 0.34p (30 September 2008: earnings per share of 1.25p)    * Adjusted to exclude cost of share-based payments

• First interim dividend per ordinary share of 1.0p declared (2008: 1.0p) to be paid in January 2010

• Well capitalised, with a strong balance sheet comprising cash of £28.1m of and £9.3m of investments

Current AUM

• Current AUM as at 30 November 2009 up 5.2% from 30 September 2009 to $2.0bn

Tim Woolley, Chief Executive Officer, commenting on the outlook:

"Our excellent investment performance together with our robust operational platform and our strong financial position gives me cause for cautious optimism as I look ahead to the second half of the fiscal year and beyond into 2010.

The performance of our funds should continue to attract inflows and we are also positioned to attract further investment talent in the year ahead allowing us to expand our product offering to our clients, while also developing and diversifying our business. Our distribution and client service capability will support this growth and we look forward to carefully expanding these areas as we bring in additional teams.

The external environment no doubt will continue to throw up challenges but I am confident, given the experience of the last eighteen months, that we are well placed to meet those challenges."

For further information please contact:
Tim Woolley, CEO / John Mansell, COO  Polar Capital Holdings PLC	Tel:  [phone]
Ed Gascoigne-Pees / Georgina Turner Financial Dynamics	Tel:   [phone]
Lee Aston / Freddie Barnfield (Nominated Adviser)
Charles Farquhar (Corporate Broking)
Numis Securities	Tel:   [phone]

  About Polar Capital

Polar Capital Holdings plc is a research driven investment management company providing a highly entrepreneurial environment for outstanding portfolio managers within a structure that offers a level of marketing, administrative and operational support normally found in much larger organisations.

Our objective is to deliver strong, sustainable earnings and dividend growth by building a highly diversified family of long-only, long-bias, equity long/short and other fundamentally driven hedge fund strategies managed under the Polar Capital brand.

Today Polar Capital has a staff of 47 of whom 23 are investment professionals managing ten funds, six managed accounts and one advisory relationships. These funds, which are aimed at institutional and professional investors, have combined assets under management as at 30 September 2009 of US$1.9bn.  

Assets by fund / strategy 

	30 September 2009  UD$m	31 March  2009 UD$m	30 September 2008  UD$m
Japan	407	306	328
Technology	634	407	559
UK	149	95	180
Europe	355	340	525
Macro	282	219	151
Global emerging markets	24	45	213
Healthcare	45	64	76
Total*	1,896	1,476	2,032

*Analysis excludes single UD$3m sub-advisory US equities account as at 30 September 2009 (March 2009: UD$4m; September 2008: US$7m)

Analysis of changes in asset types for the six months to 30 September 2009

	Long  UD$m	Hedge  UD$m	Advisory  UD$m	Total  UD$m
Total assets as at  31 March 2009	746	699	35	1,480
Performance and currency movements	283	78	5	366
Net subscriptions/(redemptions) from on going business	57	54	-	111
Net outflows from closed funds	-	(21)	(37)	(58)
Total assets at 30 September 2009	1,086	810	3	1,899

Analysis of AUM by business unit and type of funds as at 30 September 2009

Technology	33%		Long Only	58%
Japan	23%		Hedge Funds	42%
UK	8%			100%
European	19%
Macro	15%
Healthcare	2%
	100%

  Chief Executive's statement

We are pleased to report a recovery in Polar Capital's Assets Under Management (AUM) which increased by 27% over the period from US$1.5bn to US$1.9bn.

At the time of our 31 March 2009 results we indicated that the industry was showing some early signs of stability and we were hopeful of a recovery over the balance of the year. Equity markets have indeed recovered over the last six months, even more strongly than we had expected. This has benefited our long only funds and the overall improvement in markets has also enhanced the outlook for many of our clients and this has resulted in a significant improvement in fund flows over recent months.

Investment performance

Following on from an excellent 2008 most of our funds have continued to deliver a strong performance this year. On the long only side it is worth highlighting the excellent performance of our award winning Japanese team, where once again they are well ahead of their benchmark. The Technology products have also posted impressive results this year and the UK team are again delivering strong results on their UK UCITS III product.

On the hedge fund side we have seen another period of impressive performance from our European team. Their 'flagship" Forager Fund is enjoying a particularly strong year and we are seeing good inflows. The team's more concentrated Conviction Fund, which focuses on larger capitalised European companies, has delivered steady results year to date following an exceptional performance in 2008. We are optimistic of gaining greater traction with clients for this fund over the remainder of the fiscal year.

While the performance of the Discovery Fund has been lacklustre after a period of outperformance, we remain optimistic over the medium term. The Healthcare Fund should attract further funds albeit from a small starting point.

Investment Industry

There is little doubt that business conditions have been improved by the very significant rallies in world equity markets from their very depressed levels of mid March. Investors have gained increasing comfort from the apparent removal of any systemic risk in the financial system, and from the unprecedented level of fiscal and monetary stimulus that has helped stabilise the outlook for both global economic and corporate profit growth. 

The hedge fund industry has slowly digested the problems of poor 2008 performance, the liquidity and integrity issues around gates and suspended redemptions and the poor publicity created around the Madoff related funds. Hedge fund performance as represented by the Credit Suisse Tremont Hedge Fund Index is up around 15% year to date and has been in positive territory all year. Although these numbers are skewed by the sharp recovery in certain strategies, such as distressed and convertible bond arbitrage which did especially poorly last year, the record nevertheless has given renewed comfort to the concept of less volatile and better risk adjusted returns. The result is that industry flows which stabilised over the summer have now turned positive.

Despite all the noise, institutional asset allocators continue to increase their exposure to absolute return strategies in an attempt to seek out improved long term compound returns from their investment portfolios. Confronted with the prospect of below trend economic growth at least in the developed world over the next few years, it seems sensible to assume that investors will seek to focus on improving the risk adjusted performance of their portfolios and increasingly to focus more on absolute than relative returns. What seems clear is that fund managers who can deliver consistent and more compelling risk adjusted and absolute returns than markets have an exciting future. 

The future growth of the hedge fund industry is likely to be driven by more "institutional" investors increasing their allocations. This, coupled with the lessons learned from the bear market, should force a more general "institutionalisation" of the industry's practices. Risk management, governance, compliance, transparency, client centricity, business model risk, liquidity and the operational robustness of the general partner are all becoming more important themes. This trend is likely to place an increased burden on the industry cost structure. We believe that Polar's long standing belief in the importance of investment in infrastructure, places the Company in a strong competitive position supported by a cost base that is well equipped to deal with this trend towards greater "institutionalisation".

The final industry observation rests on the potential tightening of the regulatory environment. This is likely to be the inevitable reaction to the financial crisis and the apparent inability of the hedge fund industry to regulate itself. However, Polar should be well positioned to deal with it. Not only is the Company regulated by the Financial Services Authority ("FSA"), but it is also registered as an investment adviser with the Securities and Exchange Commission ("SEC"). In Europe the European Union "Undertakings for Collective Investments in Transferable Securities" ("UCITS") directive offers a platform that is regulated, transparent and liquid, and it is likely to become the fund structure of choice for investors. Polar has operated in the UCITS environment since the Company was founded in 2001 and is very familiar both with UCITS fund practice and the investor base.

Financial Review

The profitability of the business in the six month period ended 30 September 2009 is set out below.

	Six months to  30 September 2009 £'m	Six months to 30 September 2008 £'m	Year to 31 March 2009 £'m
Core operating profitability	(0.9)	0.9	1.3
Performance fee profitability	0.1	-	8.9
Interest and similar income	0.4	0.6	0.9
Loss/profit before tax before Share-based payments	(0.4)	1.5	11.1

The AUM of US$1.5bn at the start of the six month period has benefited from the positive force of rising markets lifting the value of the Company's long only assets, with good performance raising the value of both long and hedge fund assets and of net subscriptions received in the six months. Inflows were spread evenly across the long and hedge fund products. AUM at the 30 September 2009 was 27% higher at US$1.9bn compared to the start of the period.

The core operating profit of the business is directly correlated to the value of AUM managed by the Company. Given the level of AUM at the start of the period, it is unsurprising that the business delivered a core operating loss of £0.9m. The level of the loss might be less than anticipated as the £0.9m profit in the same period last year was the product of average AUM being 78% higher in 2008. The relatively better than expected performance comes mainly from the reduction in the operating costs of the business to £7.3m from £10.6m in 2008, a fall of £3.3m. 

The calculation and payment of performance fees fall in the second half of the Company's financial year. Although the quantum of such fees is this year expected to be materially lower than last year it is pleasing to note that the present good performance across the majority of the Company's funds has generated potential fees that, future performance permitting, will be received later in the year.

Looking forward, the trading conditions for the Company remain challenging and the results for the full year will be determined mainly on the receipt of performance fees and the continued rise in the Company's AUM.

The Company has historically paid two dividends a year, an initial modest dividend in January and a second following the year end. The board has decided to maintain the first interim dividend at 1.0p per share (2008: 1.0p per share) to reflect the confidence that the board has in the Company's affairs. The dividend will be paid on 20 January 2010 to shareholders on the register at 4 January 2010 and the shares will trade ex dividend from 30 December 2009.

Prospects

This is an exciting time to have taken over as Chief Executive of Polar Capital. The founding philosophy established when we started the Company in 2001 was a focus on investment performance, which has proved its worth through these turbulent times. Our excellent investment performance together with our robust operational platform and our strong financial position gives me cause for cautious optimism as I look ahead to the second half of the fiscal year and beyond into 2010.

The performance of our funds should continue to attract inflows and we are also positioned to attract further investment talent in the year ahead allowing us to expand our product offering to our clients, while also developing and diversifying our business. Our distribution and client service capability will support this growth and we look forward to carefully expanding these areas as we bring in additional teams.

The external environment no doubt will continue to throw up challenges but I am confident, given the experience of the last eighteen months, that we are well placed to meet those challenges. I would like to thank all our employees for their skill and hard work over this period and to thank Mark Kary, my predecessor, for all his hard work and personal commitment during his four and half years at the helm.

Finally I would like to conclude by thanking our clients and shareholders for their continuing support through these extraordinary times.

Tim Woolley

Chief Executive

10 December 2009

  Consolidated Income Statement

for the six months to 30 September 2009    

	(Unaudited) Six months to  30 Sept 09 £'000	(Unaudited) Six months to  30 Sept 08 £'000	(Audited) Year to  31 March 09 £'000
Revenue	6,823	12,050	51,056
Interest receivable and similar income	453	567	888
Gross income	7,276	12,617	51,944
Cost of sales	(314)	(432)	(852)
Net fees	6,962	12,185	51,092
Operating costs before share-based payments	(7,328)	(10,636)	(39,989)
(Loss)/profit on ordinary activities before share-based payments	(366)	1,549	11,103
Share-based payments	(189)	(530)	1,008
(Loss)/profit on ordinary activities before taxation	(555)	1,019	12,111
Taxation	111	(603)	(3,740)
(Loss)/profit on ordinary activities after taxation	(444)	416	8,371
Basic earnings per ordinary share	(0.62)p	0.59p	12.06p
Diluted earnings per ordinary share	(0.59)p	0.55p	11.31p
Adjusted earnings per ordinary share	(0.34)p	1.25p	9.95p

All of the items in the above statements are derived from continuing operations.            

  Consolidated Statement of Recognised Income and Expense

for the six months to 30 September 2009

	(Unaudited) Six months to  30 Sept 09 £'000	(Unaudited) Six months to  30 Sept 08 £'000	(Audited) Year to  31 March 09 £'000
(Loss)/profit for the financial period	(444)	416	9,635
Loss/gain on the revaluation of available-for-sale financial assets	(139)	258	(332)
Gain/(loss) on the fair valuation of hedging contracts	93	(536)	(42)
Deferred tax in respect of employee share options	192	92	(759)
Deferred tax in respect of available-for-sale financial assets	39	60	97
Total recognised gains and losses	(259)	290	8,599

  Consolidated Balance Sheet

for the six months to 30 September 2009

	(Unaudited) Six months to  30 Sept 09 £'000	(Unaudited) Six months to  30 Sept 08 £'000	(Audited) Year to  31 March 09 £'000
Fixed assets	100	291	162
Available-for-sale financial assets	9,266	14,615	11,655
Deferred tax assets	301	330	3
Total non-current assets	9,667	15,236	11,820
Current assets
Other financial assets	93	-	-
Receivables	2,332	3,861	7,184
Cash at bank and in hand	28,082	19,326	32,566
Total current assets	30,507	23,187	39,750
Total assets	40,174	38,423	51,570
Non-current liabilities Deferred tax liabilities	118	-	162
Current liabilities
Other financial liabilities	-	489	-
Trade and other payables	2,990	3,547	9,809
Current tax liabilities	5	583	1,981
Total current liabilities	2,995	4,619	11,790
Total liabilities	3,113	4,619	11,952
Net assets	37,061	33,804	39,618
Capital and reserves
Called up share capital	1,827	1,786	1,827
Share premium account	15,097	15,097	15,097
Investment in own shares	(871)	(510)	(871)
Other reserves	1,005	397	820
Retained earnings	20,003	17,034	22,745
Total shareholders' funds - equity interests	37,061	33,804	39,618

  Consolidated Cash Flow Statement            

for the six months to 30 September 2009

	(Unaudited) Six months to  30 Sept 09 £'000	(Unaudited) Six months to  30 Sept 08 £'000	(Audited) Year to  31 March 09 £'000
Operating activities
Cash used in/generated from operations	(3,019)	(3,125)	9,482
Tax paid	(1,977)	(2,493)	(4,179)
Net cash (outflow)/inflow generated from operating activities	(4,996)	(5,618)	5,303
Equity dividends paid	(2,487)	(4,924)	(5,630)
Payments in relation to investment in own shares	-	(102)	(463)
Receipts in relation to disposal of own shares	-	150	150
Net cash(outflow)/inflow from financing activities	(2,487)	(4,876)	(5,943)
Investing activities
Interest received and similar income	453	567	888
Purchase of property, plant and equipment	(5)	(23)	(29)
Proceeds from sale of available-for-sale financial assets	11,098	-	3,177
Purchase of available-for-sale financial assets	(8,547)	(2,050)	(2,156)
Net cash outflow generated from/(used in)  investing activities	2,999	(1,506)	1,880
Net (decrease)/increase in cash and cash equivalents	(4,484)	(12,000)	1,240
Cash and cash equivalents at start of period	32,566	31,326	31,326
Cash and cash equivalents at end of period	28,082	19,326	32,566

  Notes to the Unaudited Financial Information        

1. General Information 

Polar Capital Holdings plc ("the Company") is a public limited Company registered in England and Wales. The unaudited financial statements to 30 September 2009 have been prepared using the accounting policies used in the Group's annual accounts to 31 March 2009 and which are set out in the annual report for that year.  

The consolidated financial statements have been prepared in accordance with IFRS as adopted by the European Union and the Companies Act 1985 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets.

The consolidated financial statements incorporated the financial statements of the Company and entities controlled by the Company (its subsidiary undertakings). Where necessary adjustments are made to the financial statements of the subsidiaries to bring their accounting policies in line with the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

2. Revenue    

	(Unaudited) Six months to 30 Sept 09 £’000	(Unaudited) Six months to 30 Sept 08 £’000	(Audited) Year to 31 March 09 £’000
Investment management fees	6,346	11,912	22,350
Investment advisory fees	44	131	216
Investment performance fees	248	7	30,318
Profit/(loss) on hedging	185	–	(1,828)
	6,823	12,050	51,056

3. Profit on ordinary activities before taxation        

	(Unaudited) Six months to 30 Sept 09 £’000	(Unaudited) Six months to 30 Sept 08 £’000	(Audited) Year to 31 March 09 £’000
Profit on ordinary activities before taxation is stated after charging:
Staff costs	4,957	5,454	31,166
Depreciation of tangible fixed assets	67	128	255
Operating lease rentals – land & buildings	117	328	764
– other	158	417	749
Auditor’s remuneration
Audit services
– current year	75	40	84
– underprovision in prior year	–	24	20
Other services relating to taxation	5	63	137
Internal controls review	–	–	40
All other services	2	56	–

4. Dividends    

	(Unaudited) Six months to 30 Sept 09 £’000	(Unaudited) Six months to 30 Sept 08 £’000	(Audited) Year to 31 March 09 £’000
Dividend paid	2,487	4,924	5,630

5. Earnings per ordinary share

The calculation of basic earnings per ordinary share is based on the loss for the period of £(443,579) (September 2008: profit £416,002; March 2009: profit £8,371,134) and on 71,040,734 ordinary shares  (September 2008: 70,543,819; March 2009: 69,411,145), being the weighted number of ordinary shares.

The calculation of diluted earnings per ordinary share is based on the loss for the period of £(443,579)  (September 2008: profit £416,002; March 2009: profit £8,371,134) and 75,438,132 ordinary shares (September 2008: 75,453,858; March 2009: 73,996,814), being the weighted average number of ordinary shares allowing for all options of 5,184,742 (September 2008 and March 2009: 4,479,608) which are dilutive and shares issued on the last day of the year and not yet issued under a crystallised event of 1,629,589 (September 2008: 3,365,190: March 2009: 3,259,178).

The calculation of adjusted earnings per ordinary share is based on a loss for the period of £(443,579)  but adjusted for the share-based payments charge of £188,501 (September 2008: profit of £416,002 adjusted for the cost of share-based payments of £530,417; March 2009: profit of £8,371,134 and a credit regarding share-based payments of £1,008,583) and 75,438,132 ordinary shares (September 2008: 75,453,858; March 2009: 73,996,814), being the weighted average number of ordinary shares allowing for all dilutive options and shares not yet issued under a crystallisation event.     

6. Available-for-sale financial assets            

	(Unaudited) Six months to 30 Sept 09 £’000	(Unaudited) Six months to 30 Sept 08 £’000	(Audited) Year to 31 March 09 £’000
At beginning of period	11,655	12,779	12,779
Additions	8,547	2,050	2,156
Redemptions	(10,797)	–	(3,950)
Permanent dimunition in value	–	(472)	–
(Loss)/gain on movement in fair value	(139)	258	670
At end of period	9,266	14,615	11,655

7. Reconciliation of equity                            

	Share  capital  £’000	Share  premium  £’000	Own   shares  £’000	Capital  reserve  £’000	Other  reserves  £’000	Retained  earnings  £’000	Total  £’000
At 31 March 2008 (Audited)	1,786	15,097	(558)	447	76	21,012	37,860
Issue/(redemption) of shares	41	–	(313)	(43)	–	–	(315)
Profit for the financial period	–	–	–	–	–	8,371	8,371
Dividends paid	–	–	–	–	–	(5,630)	(5,630)
Gain/loss on available for sale financial assets	–	–	–	–	670	–	670
Movements in deferred tax	–	–	–	–	(283)	–	(283)
Fair value movements financial assets	–	–	–	–	(47)	–	(47)
Share-based payment	–	–	–	–	–	(1,008)	(1,008)
At 31 March 2009 (Audited)	1,827	15,097	(871)	404	416	22,745	39,618
Loss for the financial period	–	–	–	–	–	(444)	(444)
Equity dividends paid	–	–	–	–	–	(2,487)	(2,487)
Employee share options charge	–	–	–	–	–	189	189
Fair value hedging	–	–	–	–	93	–	93
Fair value financial assets	–	–	–	–	(139)	–	(139)
Movements in deferred tax	–	–	–	–	231	–	231
At 30 September 2009 (Unaudited)	1,827	15,097	(871)	404	601	20,003	37,061

8. Notes to the cash flow statement                

Reconciliation of profit before taxation to cash generated from operations

	(Unaudited) Six months to  30 Sept 09 £'000	(Unaudited) Six months to  30 Sept 08 £'000	(Audited) Year to  31 March 09 £'000
Cash flows from operating activities
(Loss)/profit on ordinary activities before tax	(555)	1,019	12,111
Less interest received	(453)	(567)	(888)
Depreciation of tangible fixed assets	67	128	255
Decrease/(increase) in receivables	4,852	4,301	978
(Decrease)/increase in trade and other payables	(6,819)	(9,008)	(2,746)
Share-based payment	189	530	(1,008)
Other non-cash reserve movements	(300)	472	780
Cash generated from operations	(3,019)	(3,125)	9,482

9. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not included in this note.                

B J D Ashford-Russell is a member of Polar Capital LLP and a director of the Polar Capital Technology Trust PLC (the Trust). Polar Capital LLP is the appointed investment manager of the Trust. The total fees received by the Group as investment manager of the Trust were £1,767,383 (September 2008: £1,824,295; March 2009: £2,917,985). The amounts receivable at the period end in this respect were £530,943 (Sept 2008: £505,579; March 2009: £433,513).

At the end of the period, the Group had an outstanding loan due of £870,902 (September 2008: £510,304; March 2009: 870,902) from the Polar Capital Employee Benefit Trust, which was set up in 2002 to hold ordinary shares in the Company for the benefit of employees.                    

10. The publication of non-statutory accounts 

The financial information contained in this Half Year report does not constitute statutory accounts as defined in S434 of the Companies Act 2006. The financial information for the six months ended 30 September 2009 and 2008 has not been audited. The information for the year ended 31 March 2009 has been extracted from the latest published audited accounts, which have been filed with the Registrar of Companies. The audited accounts filed with the Registrar of Companies contain a report of the independent auditor dated 1 July 2009 which, as disclosed in a footnote to that report, was revised on 16 October 2009 in order to rectify drafting errors. The report of the independent auditor on those financial statements contained no qualification or statement under s237(2) or (3) of the Companies Act 1985.  

Shareholder Information

Directors

T H Bartlam,                             Non executive Chairman

T J  Woolley ,                          Chief Executive Officer

J B Mansell,                             Chief Operating Officer

H G C  Aldous,                        Non executive director, Chairman of Audit Committee

B J D Ashford-Russell,          Non executive director 

J M B Cayzer-Colvin,             Non executive director, Chairman of Remuneration Committee

C M Hale,                                 Non executive director

Ms. S E  Street,                       Non executive director

M Thomas,                              Non executive director

Dividend

A first interim dividend of 1.0p per share has been declared for the year to 31 March 2010. This will be paid on 20 January 2010 to shareholders on the register on 4 January 2010. The shares will trade ex-dividend from 30 December 2009. 

Half Year Report 

The interim report will be posted to shareholders in January 2010. Copies of this announcement and of the Half Year report will be available from the Secretary at the Registered Office, 4 Matthew Parker Street, London SW1H 9N. The Half Year report will be published on the Company's website at www.polarcapital.co.uk.

Nominated Advisor and Corporate Broker to the Company

Numis Securities Limited

---

 

END

 

 

IR IFFLIFTLILIA