Final Results
Ashmore Group plc
7 September 2017
RESULTS FOR THE YEAR ENDING 30 JUNE 2017
Ashmore Group plc (Ashmore, the Group), the specialist Emerging Markets asset manager, today announces its audited results for the year ending 30 June 2017.
Overview
- Improvement in Emerging Markets cycle continues, recovery has further to go
- Assets under management (AuM) increased 12% to US$58.7 billion
- Broad client demand reflected in gross subscriptions of US$14.8 billion, approximately double the prior year level (US$7.6 billion)
- Net inflows of US$1.9 billion and positive market performance of US$4.2 billion
- Investment processes delivering strong investment performance
- 91% of AuM outperforming benchmarks over one year, 86% over three years and 87% over five years
- Highly efficient business model continues to deliver
- Revenue growth of 11%, with net management fees +13% and performance fees of £28.3 million
- Cost growth limited to 7% (excluding consolidated funds)
- Adjusted EBITDA margin increased from 62% to 65%
- Active seed capital management generated profits of £41.0 million, half of which were realised
- Profit before tax increased 23% to £206.2 million and diluted EPS increased 31% to 23.7p
- Strong balance sheet maintained with excess regulatory capital of £448.3 million
- Proposed final dividend per share of 12.10p to give 16.65p for the year
Commenting on the Group's results, Mark Coombs, Chief Executive Officer, Ashmore Group said:
"Ashmore has delivered strong investment performance for clients and grown assets under management by 12% over the year through positive market performance and net inflows. The Group's business model is delivering as expected, with good operating and financial performance resulting in a 31% increase in diluted EPS. There remains substantial absolute and relative value available across the diversified Emerging Markets, and Ashmore's focused strategy means it is in a strong position to continue to deliver superior investment performance and to benefit as investors raise their allocations to Emerging Markets from underweight levels."
Analysts briefing
There will be a presentation for analysts at 9.30am on 7 September 2017 at the offices of Goldman Sachs at Peterborough Court, 133 Fleet Street, London EC4A 2BB. A copy of the presentation will be made available on the Group's website at www.ashmoregroup.com.
Other information
Copies of the Company's Annual Report for the year ended 30 June 2017 and Notice of Annual General Meeting will be uploaded to the UK Financial Conduct Authority National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM. The documents will also be made available on the Group's website.
Ashmore will post its Annual Report and Notice of Annual General Meeting to shareholders on 20 September 2017. The Circular containing the Notice of Annual General Meeting contains a summary of the business of the resolutions to be proposed at the meeting and will be made available on the Group's website. The Company's Annual General Meeting will be held at 12.00pm on 20 October 2017 at Kingsway Hall, 66 Great Queen Street, London WC2B 5BX.
Contacts
For further information please contact:
Ashmore Group plc
|
Tom Shippey |
+44 (0)20 3077 6191 |
|
Group Finance Director |
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Paul Measday |
+44 (0)20 3077 6278 |
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Investor Relations |
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FTI Consulting
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Andrew Walton |
+44 (0)20 3727 1514 |
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Kit Dunford |
+44 (0)20 3727 1143 |
Chief Executive's review
Active Emerging Markets specialism delivering performance across cycles
As expected, Emerging Markets generated good returns over the past year both in absolute terms and relative to Developed Markets, and capital flows into Emerging Markets have resumed. With this favourable backdrop, Ashmore continues to deliver strong investment performance for clients, and its business model has performed as expected with good operational and financial performance demonstrated by the increase in the Group's revenues, adjusted EBITDA margin and diluted EPS. The ongoing improvements in economic and political fundamentals across Emerging Markets compare favourably with the structural growth challenges in the developed world, and provide substantial opportunities for Ashmore to continue to deliver value for clients and shareholders.
Emerging Markets backdrop
Index returns across the main Emerging Markets asset classes were strong over the year to 30 June 2017 and ranged from +6% in external debt to +24% in equities. This means that Emerging Markets assets continue to outperform their developed world counterparts, in both fixed income and equity markets. While the rally has not been a straight line, the brief interruptions have been caused by events in the developed world, such as the US election result in November 2016. The consequent reset in Emerging Markets prices presented attractive value opportunities for investors, most of whom are underweight the asset classes.
Investment performance and AuM growth
Ashmore's investment performance is strong, as expected at this point in the market cycle, with outperformance relative to benchmarks and peers reflecting the decisions to add risk when market conditions were weaker and Ashmore's active investment processes identified and acted upon the significant value available across a wide range of asset classes. The market recovery is in its early stages, with plenty of value still to be captured by active managers. The positive outlook, described in more detail in the Market review, provides the potential for continued outperformance by Ashmore's investment processes that have been consistently deployed over the past 25 years
Ashmore's assets under management increased by 12% over the 12 months from US$52.6 billion to US$58.7 billion, through positive investment performance of US$4.2 billion and net inflows of US$1.9 billion. As the cycle turned, gross sales momentum picked up and the second half of the year delivered consecutive quarters of net inflows.
The typical investor is underweight Emerging Markets, with an allocation of less than 10% and in some cases well below 5%, compared with representative benchmark weights of 20%. This presents a significant medium-term growth opportunity, as investors should raise allocations towards benchmark weights, and those benchmarks increasingly reflect the growing relevance of Emerging Markets within the world's economy and capital markets.
Financial performance
Reflecting the growth in assets under management, the Group's net revenue increased by 11% year-on-year. The favourable market environment also provided opportunities to generate performance fees, although the vast majority (89%) of the Group's fee income continues to be derived from recurring net management fees.
The Group's disciplined control of fixed costs limited operating cost growth excluding consolidated funds to 7% and notwithstanding investment in the rapidly expanding local market platforms in countries such as Colombia, Indonesia and Saudi Arabia. Consequently, the adjusted EBITDA margin rose from 62% to 65%. Cash generation in the period was strong, with 109% of adjusted EBITDA converted to cash flow excluding consolidated funds of £174.8 million. The Group's balance sheet remains well-capitalised and liquid, with total regulatory financial resources of £559.4 million compared with a regulatory capital requirement of £111.1 million, and cash and cash equivalents excluding amounts held in consolidated funds of £420.1 million.
Profit before tax increased by 23% to £206.2 million, with the Group's actively-managed seed capital programme contributing profits of £41.0 million. Diluted EPS increased by 31% to 23.7 pence, and the Board has proposed a final dividend per share of 12.10 pence to give total dividends per share of 16.65 pence for the year.
Strategic and business developments
There are several prominent themes that will affect the asset management industry over the medium term, including the increase in passive investing in certain markets, continual regulatory developments, and, partly in response to some of the perceived challenges, the industry has seen some consolidation activity. In relation to recent regulatory developments such as MiFID2, Ashmore has been working towards the implementation date of January 2018 and consequently is well prepared and believes the impact on its business model will be manageable. Ashmore's strategy and business model are designed to deliver value to clients and shareholders over the longer term by growing a high-quality, diversified, focused, specialist active investment management business. This should mean that Ashmore is well placed to deal with any medium-term industry challenges and to take advantage of the opportunities that may arise.
Phase 1: Emerging Markets investment universe continues to grow
The Emerging Markets investment universe continues to grow rapidly and now comprises US$44.6 trillion of fixed income and equity securities, an increase of 12% or US$4.7 trillion over the past 12 months. While the representation of these markets in benchmark indices remains inadequate, with just 8% of bonds and 18% of equities included in indices, this presents a substantial set of investment opportunities for active investment managers to address outside of those securities meeting the rigid index eligibility criteria. Furthermore, over time, some countries will remove the impediments to index inclusion, for example by improving foreign investor access to their domestic capital markets.
Looking at Emerging Markets fixed income securities, the US$20.1 trillion of outstanding bonds is dominated by local currency issuance comprising 89% of the total. When combined with the US$30.3 trillion of domestic credit outstanding, Emerging Markets account for only 27% of global finance. Yet Emerging Markets generate nearly 58% of global GDP, which therefore offers compelling evidence of a significantly better investment proposition than Developed Markets fixed income where 73% of global financing is supported by just 42% of global GDP.
Institutional investors in the developed world have limited exposure to Emerging Markets, with target weights for a typical pension fund being below 10% for fixed income and equities. In some cases, actual allocations are significantly below targets. It therefore remains the case that as emerging nations continue to grow more rapidly than developed countries, and their capital markets increase their representation in global markets and benchmark indices, the pressure on investors to address this underweight position will increase. This situation is amplified by the relative value arguments in favour of Emerging Markets, with attractive yields and equity valuations contrasting with the elevated price levels and negative real yields prevailing in many Developed Markets.
Phase 2: diversification through growth in intermediary AuM
The second phase of the Group's strategy looks to diversify its sources of AuM, and therefore revenues, through broadening access to its distribution channels and its client mix. This includes developing a meaningful retail business that sources high net worth capital through agents such as private banks, broker-dealers, wirehouses, wealth advisers and other intermediaries.
Over the past five years, the proportion of AuM from intermediated retail clients has ranged between 9% and 12%. Strong AuM growth from clients in Europe, the US and Asia ex Japan has all but replaced the anticipated run-off of the Japanese retail money raised in 2010 and 2011, and the proportion of Group AuM from these geographies has nearly trebled from 4% to 11%.
Ashmore has delivered growth in retail AuM, notwithstanding the challenging market conditions for much of the period when sentiment, and especially retail investor attitudes, was negative towards Emerging Markets. While retail capital-raising was difficult against this backdrop, the Group secured new distribution agreements and gained intermediaries' approval for products to put it in a stronger position when the cycle turned and investor sentiment improved.
Of particular note are the blended debt, short duration and frontier equity products, which are selling well through retail channels in Europe and the US. Asian private bank relationships have also delivered growth through fixed duration products.
Phase 3: local markets
A key strategic initiative is to develop a network of local Emerging Markets asset management platforms to capture domestic flows. These businesses also provide access to global investors wishing to take specialised single-country or regional exposure through local managers affiliated with Ashmore's strong brand and control culture. While many of the businesses are at an early stage of development, the network spans seven countries, represents a meaningful proportion of Ashmore's employees including investment professionals, and contributes approximately 5% of Group AuM.
The local businesses are performing as expected, with good growth in AuM, revenues and profits. During the financial year, action was taken to resolve growth challenges in some of the weaker-performing franchises. This resulted in selling the Turkish business to a local, independent manager, and introducing a major distribution partner to the China joint venture. These actions have not only improved the aggregate financial performance of the local businesses, but have also enabled the Group to provide greater support to the businesses that are performing well and have created capacity to consider other markets.
Clients
Ashmore has a high-quality, diversified client base that is largely institutional but with a growing contribution from retail clients accessed through intermediaries such as private banks, broker-dealers and wirehouses. Client relationships are managed by a 40-strong distribution team that is located throughout Ashmore's worldwide office network. This enables direct, long-standing relationships to be developed, which assists in sustaining client engagement throughout the market cycle, and ensures that value opportunities can be directly discussed as market cycles turn. As expected, this type of 'early adopter' activity has been seen recently from certain of the Group's clients.
The average tenure of client relationship has increased over the past two years from five years to six years, which implies that a greater proportion of the client base has experienced a full Emerging Markets cycle and seen the value opportunities that can arise. It also means that the potential for cross-selling increases as clients become more familiar with the breadth and depth of the Emerging Markets asset classes, and with Ashmore's ability to identify attractive investment opportunities.
The Emerging Markets allocation opportunity described above is substantial and predominantly relates to developed world institutions. However, there is an additional source of AuM growth accessed through the third phase of the Group's strategy, which seeks to manage capital for investors domiciled in the emerging world. Success here is illustrated by the 33% of the Group's AuM that is sourced from such clients, through global client relationships and Ashmore's network of local asset management platforms.
Cost efficiency
The Group takes a disciplined approach to operating costs and during the year cost savings achieved in the global business units have enabled continued investment in the rapidly-growing local businesses, for example in Colombia, Indonesia and Saudi Arabia. Group headcount has fallen over the period, which largely reflects natural levels of turnover and where business processes have been made more efficient.
In November 2016, the Group consolidated its US operations into its operating hub in New York. This locates specialist equities investment professionals alongside distribution and support functions, and will deliver operational efficiencies through the combination of the offices.
Brexit
In March 2017, the UK formally started the process to leave the European Union (EU), triggering a two-year period to determine the exit terms for the UK (Brexit). However, there remains uncertainty regarding the terms on which the UK will leave and the implications for the UK financial services industry, notably for Ashmore regarding the passporting of services into and out of the EU. Ashmore will continue to monitor developments closely and will take appropriate action once there is greater clarity. For now, the direct operational implications of Brexit are deemed manageable.
Outlook
As described in the Market review, the performance of Emerging Markets assets over the past year has been strong. However, given the significant price moves and macroeconomic adjustments undertaken over the past cycle, there remains substantial value available across the Emerging Markets asset classes, in absolute terms but also relative to developed world assets. Ashmore's strategy to capitalise on Emerging Markets growth, its proven investment processes, and its efficient business model, mean it is in a strong position to continue to deliver superior investment performance for clients, to raise investor allocations to Emerging Markets, and to generate further value for shareholders.
People and culture
Ashmore's distinctive culture, underpinned by its remuneration philosophy that places an emphasis on pay-for-performance and long-dated equity incentivisation, has withstood another market cycle. The superior investment performance and improving financial performance delivered over the past year, together with strategic and operational developments, are testament to the hard work of all employees, for which I would like to say thank you on behalf of all shareholders.
Mark Coombs
Chief Executive Officer
6 September 2017
Market review
Positive trends across Emerging Markets
Year in review
The year to 30 June 2017 has been positive for Emerging Markets investors. Developed world central banks have become more hawkish, which has put pressure on the returns available from their fixed income markets that still have a significant amount, nearly US$9 trillion, of bonds with negative yields and a further substantial amount with historically low real yields. In contrast, Emerging Markets central banks have been cutting rates as inflation is falling in response to the macro adjustments undertaken in recent years. Emerging Markets bonds and currencies have therefore performed well in absolute terms, but also relative to developed world assets.
Equity markets have performed strongly, and the high absolute and relative returns achieved in Emerging Markets reflect accelerating GDP growth across a wide range of countries as their economic cycles turn more positive after a period of adjustment.
A weaker US dollar has contributed to good returns for local currency investors, and more stable commodity prices over the period, particularly oil, have improved investor sentiment towards Emerging Markets.
The geopolitical landscape remains complex. While the US and UK have seen a significant degree of political change over the 12 months, Europe now appears more settled following the French presidential election. Events on the Korean peninsula and in the Middle East continue to act as sources of volatility for many markets.
Resilience of Emerging Markets
The long-term growth opportunity across Emerging Markets is significant and is in contrast to the structural growth impediments facing many Developed Markets. Emerging Markets generate 58% of world GDP and this share is expected to rise steadily as the 87% of the world's population that resides in these countries becomes wealthier over time. Consequently, GDP per capita in Emerging Markets, which today is roughly where the developed world was in 1980, is expected to continue to increase at a fast pace.
In the shorter term, Emerging Markets countries have faced and successfully dealt with a series of financial and economic challenges. Between 2010 and 2015, the 'US taper tantrum', a stronger US dollar, the 50% fall in commodity prices and the start of the Fed rate hiking cycle all presented headwinds. Emerging Markets economies grew more slowly over this period as global asset allocators moved capital to investments supported by quantitative easing (QE) in Developed Markets.
Yet, despite these headwinds, Emerging Markets economic and political fundamentals held up far better than most investors expected. Aggregate GDP growth remained at least twice that of the developed world, and the Emerging Markets growth premium began to increase again in early 2016 and looks set to continue to expand for several more years.
The resilience of Emerging Markets can be seen elsewhere. For example, sovereign defaults were limited in number and very few countries had to resort to IMF support over this period, barring a small number of the most vulnerable economies. In the Emerging Markets corporate high yield sector, default rates remain materially lower than for similarly-rated US companies.
This resilience can be attributed to Emerging Markets' stronger fundamentals, such as low debt levels, inflation targeting by central banks, the establishment of domestic pension funds, greater prevalence of floating exchange rates with high levels of foreign exchange reserves, high savings and investment rates, room to ease both fiscal and monetary policies, better demographics, and a greater proclivity to reform as soon as challenges arise.
Therefore, the weakness in Emerging Markets asset prices in the recent past was primarily the result of investor behaviour and capital flows during the QE period rather than deterioration in the underlying fundamentals. This implies that substantial value has been created for Emerging Markets investors, a situation that began to be recognised over the past year.
Market recovery appears sustainable
Emerging Markets valuations remain attractive relative to comparable investments in Developed Markets, but they are also attractive in their own right. The principal drivers of Emerging Markets returns over the next few years are likely to be as follows.
- GDP growth has been accelerating since 2015 and should continue to recover given the large slowdown in growth between 2010 and 2015. The recovery so far has been led by improving external balances as exchange rates fell to 13-year lows, but economic conditions should continue to improve as capital flows return to Emerging Markets.
- Many Emerging Markets countries have pursued deep structural reforms in recent years, including Argentina, Brazil, Colombia, India, Indonesia, Mexico and Russia. Successful reforms remove the obstacles to growth and allow countries to grow faster before encountering inflationary constraints.
- Most foreign investors have underweight allocations to Emerging Markets, typically at less than 10% versus the 20% weight in the more representative global indices.
- Foreign investor capital flows back into Emerging Markets should ease financial conditions, which in turn will stimulate economic growth. Hence, the QE-related financial tightening of recent years should start to be reversed. This should support returns in local markets as well as leading to tighter spreads on external debt.
Active management can mitigate the risks
There are risks to this optimistic outlook, but the major systemic risks to Emerging Markets, such as a decline in commodity prices and US dollar strength, have already been endured and have been largely managed well by the majority of Emerging Markets countries.
There will always be a small number of country specific risks, however these can be addressed through active management. Similarly, buying opportunities for active investors can be presented by price volatility induced by events in Developed Markets that may have little or no bearing on Emerging Markets fundamentals.
Higher US interest rates appear to be more than priced in by the relative yields available across Emerging Markets. Indeed, as rates continue to rise in the US, spreads on US dollar-denominated Emerging Markets debt have substantial room to compress so as to continue to deliver outperformance against US Treasuries.
One of the external risks, particularly to local currency markets, appeared to be the threat of a US border adjustment tax, which could have undermined the case for capital flowing back into faster-growing Emerging Markets economies in favour of supporting domestic US production. However, this threat has receded with the US administration recently abandoning this policy.
Significant value available across Emerging Markets
Although Emerging Markets assets have performed well recently, there remains substantial value available and the recovery should be supported over the medium term by inbound capital flows from underweight foreign institutional investors. These are likely to proceed at a measured pace because investors are mindful of the market volatility caused by the 2013 US taper tantrum and, ironically, there is a degree of risk aversion influenced by concerns about elevated asset price levels in Developed Markets. As evidenced by the high yields and attractive equity valuations in Emerging Markets, there is a very significant value opportunity available and specialist, active investment management can deliver outperformance across a broad range of Emerging Markets asset classes.
External debt
The JP Morgan EMBI GD benchmark index delivered a +6.0% return over the 12 months, but with a wide dispersion of returns from the 65 constituent countries ranging from Venezuela with a +29.9% return to Philippines with a -1.5% return. High yield credits performed particularly well, returning +10.0% over the year versus +2.6% for investment grade bonds.
Over three years, Ashmore's external debt broad composite has generated gross annualised returns of +6.8%, outperforming the index (+5.4% annualised).
The outlook for external debt returns over the next few years is positive, with a spread of approximately 300bps over the US Treasury curve providing good value and with the potential for tighter spreads as flows to Emerging Markets pick up and reduce the need for governments to raise new debt. Also, with more than 100 Emerging Markets countries yet to issue index-eligible sovereign debt, the diversity of the external debt benchmark should continue to increase.
Local currency
The JP Morgan GBI-EM GD index performed in line with hard currency bonds, returning +6.4% over the year. The index yield of 6.5% is attractive in nominal and real terms, with index-weighted inflation of around 4%, and stronger Emerging Markets currencies against the US dollar contributing to returns.
Over three years, Ashmore's local currency bonds composite has returned -1.7% gross annualised, outperforming the index (-2.8% annualised).
While inflation is expected to rise slightly, real yields should remain positive and currencies have room to recover some of the 40% to 50% decline in value experienced against the US dollar between 2010 and 2015. The value proposition available in local currency bonds is therefore one of the strongest in global fixed income and, as capital flows back into local markets, financial conditions should ease, stimulating investment, consumption and growth across Emerging Markets. As with external debt, the index diversity is increasing steadily with the number of countries in the GBI-EM GD index rising from 15 to 17 over the past year.
Corporate debt
The CEMBI BD benchmark index delivered a +6.8% return over the 12 months and, echoing the performance of sovereign bonds, high yield outperformed investment grade (+11.6% versus +3.9%). The HY default rate fell from 4.2% to 2.2% over the period and remains well below the US HY default rate of 4.4%, reflecting the greater diversification of the Emerging Markets universe, less use of financial leverage, and the potential for sovereign support in certain cases.
Ashmore's corporate debt composite performed in line with the benchmark over three years with gross annualised returns of +4.9%. The relative performance should continue to improve as the periods of underperformance in late 2014 and early 2015 roll off.
The fundamental outlook for Emerging Markets corporates is expected to benefit from the cyclical upswing described for sovereign credit, as it will lead to rising profits and falling default risk. When compared with US corporates, there is a clear value argument in favour of Emerging Markets credit, as it has a lower default rate, wider spreads, particularly in the HY market, and typically less leverage than identically-rated US companies.
Blended debt
The standard blended debt benchmark index returned +5.9% over the year.
Active management of investment theme allocations - external debt, local currency and corporate debt - has delivered significant outperformance over three years, with Ashmore's blended debt composite returning +4.7% gross annualised versus +1.4% for the benchmark index. The typical blended debt portfolio is positioned for further market strength, with a current overweight allocation to local currency markets.
Given the wide range of asset class returns typically available, investors allocating to Emerging Markets may not have the confidence or experience to target a discrete asset class. Ashmore's blended debt and multi-asset products can provide broad-based exposure to Emerging Markets fixed income and all investment themes, respectively, with active management producing significant outperformance versus the constituent asset classes. Blended debt is therefore expected to enjoy good growth as industry allocations increase.
Equities
Equities outperformed fixed income over the year, reflecting expectations of accelerating GDP growth. The Group's specialist products provide a range of risk and return profiles, from single country exposure to frontier equities and global Emerging Markets small cap. Over three years, the investment performance track records of these funds are strong with, for example, frontier equities delivering gross annualised returns of +5.0% versus -3.4% for the MSCI benchmark index.
The uncorrelated returns available from specialist equity products are highly attractive, and with investment opportunities typically driven by domestic factors such as infrastructure development or deregulation, they can be insulated from the vagaries of global macro forces.
Alternatives
Capital raising in the period was focused on a number of new funds in the Group's local market franchises, such as Colombia and Saudi Arabia. There are several established growth trends in Emerging Markets that require long-term investment, such as infrastructure development, private healthcare provision, and renewable energy. The Group's experience of structuring funds and sourcing investors who can make multi-year capital commitments means it is in a good position to capitalise on these growth trends.
Multi-asset
As described above, multi-asset products provide broad access to retail and institutional investors that do not wish to take more specific Emerging Markets risks. Investment performance was positive over the period across the Group's multi-asset funds.
Overlay/liquidity
The investment theme increased its AuM over the year through net inflows from institutional clients, particularly in the second half.
Business review
Ashmore delivered a strong operating and financial performance for the year with a 12% increase in AuM, 11% revenue growth, cost growth limited to 7% (excluding consolidated funds) and strong returns on seed capital generating a 23% increase in profit before tax to £206.2 million. Diluted EPS increased by 31% to 23.7p.
Adjusted EBITDA for the year was £161.1 million, an increase of 23% compared with the prior year, and resulting in an increase in the adjusted EBITDA margin from 62% to 65%.
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, and to provide a more meaningful comparison with the prior year. For the purposes of presenting 'Adjusted' profits, operating 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 |
FY2016/17 Reported |
Seed capital-related items |
Foreign exchange translation |
FY2016/17 Adjusted |
FY2015/16 |
|
Management fees net of distribution costs |
221.6 |
- |
- |
221.6 |
195.9 |
|
Performance fees |
28.3 |
- |
- |
28.3 |
10.4 |
|
Other revenue |
2.7 |
- |
- |
2.7 |
4.1 |
|
Foreign exchange |
5.0 |
- |
(7.8) |
(2.8) |
1.1 |
|
Net revenue |
257.6 |
- |
(7.8) |
249.8 |
211.5 |
|
Investment securities |
22.4 |
(22.4) |
- |
- |
- |
|
Third-party interests |
(12.5) |
12.5 |
- |
- |
- |
|
Personnel expenses |
(67.8) |
- |
1.6 |
(66.2) |
(55.5) |
|
Other expenses excluding depreciation & amortisation |
(27.4) |
4.9 |
- |
(22.5) |
(25.1) |
|
EBITDA |
172.3 |
(5.0) |
(6.2) |
161.1 |
130.9 |
|
EBITDA margin |
67% |
- |
- |
65% |
62% |
|
Depreciation & amortisation |
(5.5) |
- |
- |
(5.5) |
(5.1) |
|
Operating profit |
166.8 |
(5.0) |
(6.2) |
155.6 |
125.8 |
|
Net finance income/expense |
38.6 |
(22.6) |
(13.4) |
2.6 |
2.0 |
|
Associates & joint ventures |
0.8 |
- |
- |
0.8 |
(1.7) |
|
Seed capital-related items |
- |
27.6 |
- |
27.6 |
5.1 |
|
Profit before tax excluding FX translation |
206.2 |
- |
(19.6) |
186.6 |
131.2 |
|
Foreign exchange translation |
- |
- |
19.6 |
19.6 |
36.3 |
|
Profit before tax |
206.2 |
- |
- |
206.2 |
167.5 |
Assets under management
AuM increased by 12% over the year from US$52.6 billion to US$58.7 billion, through gross subscriptions of US$14.8 billion, approximately double the prior year level of US$7.6 billion, lower gross redemptions of US$12.9 billion (FY2015/16: US$15.1 billion) and positive investment performance of US$4.2 billion (FY2015/16: US$1.2 billion). Average assets under management increased by 5% to US$54.8 billion.
Gross subscriptions represent 28% of opening AuM (FY2015/16: 13%) and gross redemptions represent 25% (FY2015/16: 26%). Sales momentum improved throughout the year as Emerging Markets rallied and Ashmore's investment processes delivered outperformance. Client demand was fairly broadly spread across the fixed income and equities themes.
In the blended debt theme, which saw the highest level of subscriptions, there was notable demand from US pension funds and European retail clients. Corporate debt also generated good flows, particularly into short duration funds from European retail clients. Subscriptions into the other fixed income themes were from a broad mix of Asian and European pension funds, government-related clients and retail investors sourced through intermediaries. Equities saw momentum in the specialist products, particularly frontier markets, and local market platforms such as Indonesia including global institutional clients allocating to single country funds. There were also meaningful flows into the overlay theme.
Redemptions picked up for a short period after the US election result in November 2016, but reduced steadily through the second half of the year, notwithstanding some large institutional account withdrawals from blended debt, corporate debt and local currency mandates. The result was a much improved net flow performance in the second half of the year, with US$2.6 billion of net inflows versus a net outflow of US$0.7 billion in the first half. The larger institutional redemptions experienced in the period were from a variety of US and European pension funds in blended debt, corporate debt and equities, and government-related clients in the external debt and local currency themes.
The momentum in the third-party intermediary business continued to build during the period, with net inflows of US$1.2 billion after anticipated Japanese retail redemptions of US$0.2 billion. Short duration, specialist equity and blended debt products continue to benefit from good demand from retail clients in Europe, the US and Asia.
AuM movements by investment theme
The AuM by theme as classified by mandate is shown in the table below. Reclassifications typically occur when a fund's investment objectives, investment guidelines or performance benchmark change such that its characteristics cause it to be included in a different theme.
|
Theme |
AuM 30 June 2016 US$bn |
Performance |
Gross subscriptions US$bn |
Gross redemptions US$bn |
Net flows US$bn |
Reclassifications US$bn |
AuM 30 June 2017 US$bn |
|
External debt |
11.7 |
1.0 |
2.2 |
(2.5) |
(0.3) |
0.9 |
13.3 |
|
Local currency |
13.3 |
1.0 |
2.1 |
(2.7) |
(0.6) |
- |
13.7 |
|
Corporate debt |
5.0 |
0.7 |
2.6 |
(2.0) |
0.6 |
- |
6.3 |
|
Blended debt |
13.7 |
1.1 |
4.0 |
(3.3) |
0.7 |
(0.9) |
14.6 |
|
Equities |
3.1 |
0.4 |
1.1 |
(1.2) |
(0.1) |
- |
3.4 |
|
Alternatives |
1.5 |
(0.1) |
0.1 |
- |
0.1 |
- |
1.5 |
|
Multi-asset |
1.2 |
0.1 |
0.1 |
(0.3) |
(0.2) |
- |
1.1 |
|
Overlay/liquidity |
3.1 |
- |
2.6 |
(0.9) |
1.7 |
- |
4.8 |
|
Total |
52.6 |
4.2 |
14.8 |
(12.9) |
1.9 |
- |
58.7 |
Investor profile
The Group's client base remains predominantly institutional in nature, with 88% (30 June 2016: 90%) of AuM from such clients. Ashmore has established direct, long-term relationships with its institutional clients, the most significant categories of which are government-related entities (such as central banks, sovereign wealth funds and pension schemes) and private and public pension plans, together accounting for 68% of AuM (30 June 2016: 70%). AuM sourced through intermediaries, which provide the Group with access to retail markets, increased to 12% of the Group's total AuM (30 June 2016: 10%).
Segregated accounts represent 67% of AuM (30 June 2016: 69%), and the Group continues to expect institutional demand for such fund structures to increase to satisfy regulatory obligations, to enable the application of specific investment guidelines, and to provide for bespoke reporting.
AuM as invested
The table below shows AuM 'as invested' by underlying asset class, which adjusts from 'by mandate' to take account of the allocation into the underlying asset class of the multi-asset and blended debt themes; and of crossover investment from within certain external debt funds.
AuM as invested
|
|
30 June 2017 % |
30 June 2016 % |
|
External debt |
39 |
39 |
|
Local currency |
30 |
31 |
|
Corporate debt |
13 |
14 |
|
Equities |
7 |
7 |
|
Alternatives |
3 |
3 |
|
Overlay/liquidity |
8 |
6 |
The Group's AuM by investment destination is diversified geographically and broadly consistent with the prior year, with 37% in Latin America, 23% in Asia Pacific, 12% in the Middle East and Africa, and 28% in Eastern Europe.
Financial review
Revenues
Net revenue increased 11% from £232.5 million to £257.6 million, with higher net management fees driven by growth in AuM and a beneficial average GBP:USD rate compared with the prior year. Stronger markets enabled a higher level of performance fees to be generated, which offset lower foreign exchange translation revenues.
Management fee income net of distribution costs rose by 13% to £221.6 million (FY2015/16: £195.9 million). Good AuM growth and the benefit of a stronger US dollar against Sterling more than offset the reduction in the aggregate net management fee margin from 55bps to 52bps.
The majority of the movement is accounted for by changes in investment theme mix and mandate size effects. The former reflects growth in lower margin themes such as overlay/liquidity and lower average AuM in higher margin themes such as equities and multi-asset. The latter is attributable to individually small redemptions late in the prior year and early in the current financial year, particularly in the external debt, local currency, equities and multi-asset themes, and large institutional subscriptions in the local currency and equity themes. The alternatives margin reflects institutional rebates granted on two funds in realisation phase and the underlying run-rate theme margin is around 130bps.
Performance fees of £28.3 million (FY2015/16: £10.4 million) were generated during the year, reflecting good market conditions. At 30 June 2017, 12% of the Group's AuM was eligible to earn performance fees (30 June 2016: 14%), of which a significant proportion is subject to rebate agreements.
Translation of the Group's non-Sterling assets and liabilities at the period end resulted in a foreign exchange gain of £7.8 million (FY2015/16: £21.0 million), reflecting US dollar strength against Sterling. The Group recognised net realised and unrealised hedging losses of £2.8 million (FY2015/16: £1.1 million gain) to give total foreign exchange revenues of £5.0 million (FY2015/16: £22.1 million).
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 fees |
Performance |
Performance |
Net management fee margin |
Net management fee margin |
|
External debt |
48.9 |
37.0 |
9.4 |
1.5 |
50 |
49 |
|
Local currency |
42.8 |
40.5 |
11.9 |
0.1 |
41 |
45 |
|
Corporate debt |
25.9 |
21.9 |
1.8 |
0.2 |
62 |
61 |
|
Blended debt |
57.8 |
52.3 |
2.6 |
0.1 |
53 |
54 |
|
Equities |
21.5 |
22.3 |
0.9 |
- |
90 |
104 |
|
Alternatives |
12.8 |
10.9 |
1.0 |
8.5 |
124 |
141 |
|
Multi-asset |
7.4 |
7.8 |
0.7 |
- |
80 |
94 |
|
Overlay/liquidity |
4.5 |
3.2 |
- |
- |
15 |
16 |
|
Total |
221.6 |
195.9 |
28.3 |
10.4 |
52 |
55 |
Operating costs
Total operating costs of £100.7 million (FY2015/16: £92.3 million) include £4.9 million of consolidated fund expenses (FY2015/16: £2.4 million). Excluding these costs, and notwithstanding the 21% increase in the variable compensation charge, total operating expenses rose by only 7% compared with the prior year, demonstrating the Group's unrelenting focus on cost control.
Excluding variable compensation, consolidated fund expenses and adverse currency effects of £4.4 million, operating costs were reduced by 11%.
Average headcount fell 8% from 277 to 256 employees, reflecting the sale of the Turkish business and the effect of consolidating the US offices, together with some natural staff turnover in the global business, partially offset by expansion in the rapidly growing local businesses in Colombia, Indonesia and Saudi Arabia. The Group's headcount at 30 June 2017 was 252 employees (30 June 2016: 266 employees). Fixed staff costs of £24.8 million were 3% higher (FY2015/16: £24.1 million) than in the prior year, but excluding the effect of lower average exchange rates, fixed staff costs reduced by 4% versus the prior year.
Other operating costs, excluding depreciation and amortisation, were £27.4 million (FY2015/16: £27.5 million) and excluding consolidated fund expenses fell by 10% to £22.5 million (FY2015/16: £25.1 million). This reduction was due to an ongoing focus on controlling discretionary expenditure, such as travel, and other operating costs such as insurance. Additionally, where the Group acts as an agent in respect of certain services contracted for by its funds, for example third-party services, the recharge for these services was historically recognised in other income. This year, in order to reflect the pass-through nature of these costs, the recharge of £1.5 million (FY2015/16: £1.2 million) has been offset within other operating costs. There is no impact on operating profit.
The charge for variable compensation was £43.0 million, an increase of 21% compared with the prior year (FY2015/16: £35.6 million). This represents 21% of EBVCIT (FY2015/16: 20%), reflecting the improved business and operating performance including particularly strong seed capital gains. Total personnel expenses for the period were therefore £67.8 million (FY2015/16: £59.7 million).
EBITDA
EBITDA for the period of £172.3 million was 20% higher than in the prior financial year (FY2015/16: £143.0 million). On an adjusted basis, reclassifying the effects of seed capital investments and foreign exchange translation, EBITDA was 23% higher at £161.1 million (FY2015/16: £130.9 million).The adjusted EBITDA margin was 65% (FY2015/16: 62%), benefiting from higher revenues and the ongoing strict control of operating costs described above.
Finance income
Net finance income of £38.6 million for the period (FY2015/16: £31.3 million) includes items relating to seed capital investments, which are described in more detail below. Excluding these items, net interest income for the period was similar to last year at £2.6 million (FY2015/16: £2.0 million).
Taxation
The majority of the Group's profit is subject to UK taxation; of the total current tax charge for the year of £40.7 million (FY2015/16: £37.0 million), £31.3 million (FY2015/16: £31.5 million) relates to UK corporation tax.
There is an £18.2 million net deferred tax asset on the Group's balance sheet as at 30 June 2017 (30 June 2016: £14.3 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 17.8% (FY2015/16: 23.2%), which is lower than the blended UK corporation tax rate of 19.75% (FY2015/16: 20.0%). This reflects the blend of the varying rates that apply across 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 corporate tax rate.
Balance sheet, cash flow and foreign exchange
It is the Group's policy to maintain a strong balance sheet in order to support regulatory capital requirements, to meet the commercial demands of current and prospective clients, and to fulfil development needs across the business. These include funding establishment costs of distribution offices and local asset management ventures, seeding new funds, trading or investing in funds or other assets, and other strategic initiatives.
As at 30 June 2017, total equity attributable to shareholders of the parent was £724.4 million (30 June 2016: £676.7 million). There is no debt on the Group's balance sheet.
Cash
Ashmore's business model delivers a high conversion rate of operating profits to cash. The Group generated cash of £177.0 million before working capital changes (FY2015/16: £151.2 million) and £171.3 million of cash from operations (FY2015/16: £125.2 million) from operating profit of £166.8 million for the period (FY2015/16: £137.9 million).
Cash and cash equivalents by currency
|
|
30 June 2017 £m |
30 June 2016 £m |
|
Sterling |
149.7 |
212.6 |
|
US dollar |
253.8 |
123.2 |
|
Other |
29.0 |
28.2 |
|
Total |
432.5 |
364.0 |
The 19% increase in the Group's cash balance over the period reflects operational cash generation and the successful recycling of historical seed capital investments, as described below, offset by the payment of ordinary dividends.
Seed capital investments
The Group's seeding programme has successfully enabled growth in third-party AuM with approximately 13% of Group AuM in funds that have been seeded.
Seed capital is actively managed and during the period the Group made new investments of £57.0 million, realised £117.4 million from previous investments and therefore, after including positive market movements of £32.1 million, the market value of the Group's seed capital reduced from £238.5 million to £210.2 million over the period. The Group has also committed £29.4 million that was undrawn at the year end. The original cost of the Group's current seed capital investments is £170.7 million (30 June 2016: £207.4 million), representing 33% of Group net tangible equity (30 June 2016: 35%). The majority of the seed capital is held in liquid funds, such as daily-dealing SICAVs and US 40-Act mutual funds.
New investments were made across a broad range of funds, but with significant investments in alternatives funds in Colombia, the frontier equities SICAV, and an absolute return fund in the external debt theme. The most significant realisations were from the mutual funds in the local Indonesian business, which now manages more than US$1.0 billion and has returned substantially all of the Group's seed capital, the US frontier equities fund, and the US short duration fund.
Seed capital market value by currency
|
|
30 June 2017 £m |
30 June 2016 £m |
|
US dollar |
188.3 |
189.2 |
|
Indonesian rupiah |
5.0 |
33.9 |
|
Colombian peso |
9.6 |
7.6 |
|
Other |
7.3 |
7.8 |
|
Total |
210.2 |
238.5 |
The seed capital programme generated a pre-tax profit of £41.0 million for the year (FY2015/16: £24.6 million), comprising foreign exchange translation gains of £13.4 million and market and other movements of £27.6 million. Over half (£20.8 million) of the pre-tax profit contribution was realised on the recycling of previous investments, with the balance representing unrealised profits at the year end. The table below draws together the relevant line items to assist in the understanding of the financial impact of the Group's seed capital programme.
Financial impact of seed capital investments
|
|
FY2016/17 £m |
FY2015/16 £m |
|
Consolidated funds (note 20): |
|
|
|
Gains/(losses) on investment securities |
22.4 |
(5.7) |
|
Change in third-party interests in consolidated funds |
(12.5) |
3.4 |
|
Operating costs |
(4.9) |
(2.4) |
|
Finance income |
7.8 |
4.7 |
|
Sub-total: consolidated funds |
12.8 |
0.0 |
|
|
|
|
|
Unconsolidated funds (note 8): |
|
|
|
Market return |
14.8 |
5.1 |
|
Foreign exchange |
13.4 |
19.5 |
|
Sub-total: unconsolidated funds |
28.2 |
24.6 |
|
|
|
|
|
Total seed capital profit/(loss) |
41.0 |
24.6 |
|
- realised |
20.8 |
1.2 |
|
- unrealised |
20.2 |
23.4 |
Goodwill and intangible assets
At 30 June 2017, goodwill and intangible assets on the Group's balance sheet totalled £79.9 million (30 June 2016: £82.5 million) with the decrease attributable to an amortisation charge of £4.5 million (FY2015/16: £3.9 million) and a foreign exchange revaluation gain through reserves of £1.9 million (FY2015/16: £12.3 million).
Own shares held
The Group purchases and holds shares through an Employee Benefit Trust (EBT) in anticipation of the vesting of share awards. At 30 June 2017, the EBT owned 38,701,321 (30 June 2016: 41,173,968) ordinary shares.
Foreign exchange
The majority of the Group's fee income is received in US dollars and it is the Group's established 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. The Group's Foreign Exchange Management Committee determines the proportion of budgeted fee income to hedge by regular reference to expected non-US dollar, and principally Sterling, cash requirements. The proportion of fee income received in foreign currency and not subject to hedging is held as cash or cash equivalents in the foreign currency and marked to market at the period end exchange rate.
Translation of the Group's non-Sterling denominated balance sheet resulted in a foreign exchange translation gain of £7.8 million, principally as a result of the strength of the US dollar against Sterling. The Group sold US$95 million of its US dollar cash holdings as the exchange rate moved in its favour during the year. The sensitivity of the Group to exchange rate movements, including GBP:USD, is shown in note 21. Net realised and unrealised hedging losses of £2.8 million were recognised for the period.
Regulatory capital
As a UK listed asset management group, Ashmore is subject to regulatory supervision by the Financial Conduct Authority (FCA) under the Prudential Sourcebook for Banks, Building Societies and Investment Firms. At the year end, the Group had two UK-regulated entities: Ashmore Investment Management Limited (AIML), and Ashmore Investment Advisors Limited (AIAL), on behalf of which half-yearly capital adequacy returns are filed. Both AIML and AIAL held excess capital resources relative to their requirements at all times during the period under review.
Since 1 January 2007, the Group has been subject to consolidated regulatory capital requirements, whereby the Board is required to assess the degree of risk across the Group's business, and is required to hold sufficient capital against these requirements.
The Board has therefore assessed the amount of Pillar II capital required to be £111.1 million (30 June 2016: £99.9 million). The net increase of £11.2 million compared with the prior year is largely attributable to a higher market risk requirement reflecting more volatile market conditions, together with a slightly higher operational risk requirement and an increase in the capital requirements for undrawn illiquid seed capital commitments. The Group has total capital resources of £559.4 million, giving a solvency ratio of 404% and excess regulatory capital of £448.3 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 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 operating and financial performance during the period, its balance sheet strength, and the Board's confidence in the Group's future prospects, the Directors are recommending a final dividend of 12.10 pence per share for the year ending 30 June 2017, which, subject to shareholder approval, will be paid on 1 December 2017 to shareholders who are on the register on 3 November 2017.
Tom Shippey
Group Finance Director
6 September 2017
Alternative performance measures
The Group discloses non-GAAP financial alternative performance measures in order to assist shareholders' understanding of the operational performance of the Group during the accounting period.
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
Defined as 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. EBVCIT is defined as operating profit excluding the charge for variable compensation and seed capital-related items. The items relating to seed capital are 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 business before certain non-cash items, financing income and charges, and taxation.
Adjusted EBITDA
Defined as EBITDA excluding 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.
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
Risk management and internal control systems
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.
The Group's principal risks that are most relevant to the implementation of its strategy and business model are described in the table below, 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 - Market capacity issues and increased competition - Inadequate communication with, and management of, existing and potential shareholders of Ashmore Group plc |
|
- Group strategy is approved by a Board with relevant industry experience - Experienced Emerging Markets investment professionals participate in Investment Committees - Strong balance sheet with no borrowing - Diversification of investment themes and capabilities, and periodic capacity reviews - Dedicated investor relations position that reports to the Group Finance Director and Board - Group Media policies and list of approved spokespeople |
|
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 - Inadequate client oversight including alignment of interests |
|
- 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 - 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 |
|
Treasury risks (Responsibility: Chief Executive Officer and Group Finance Director) |
||
|
- Inaccurate financial projections and hedging of future cash flows and balance sheet, as well as inadequate liquidity and regulatory capital provision for Group and its subsidiaries |
|
- Defined risk appetite and ICAAP demonstrates excess financial resources - Group Liquidity and FX hedging policies - Seed capital is subject to strict monitoring by the Board within a framework of set limits including diversification |
|
Investment risks (Responsibility: Group Investment Committees) |
||
|
- Downturn in long-term performance - Manager non-performance including i) ineffective leverage, cash and liquidity management and similar portfolios being managed inconsistently; ii) neglect of duty, market abuse; iii) inappropriate oversight of special purpose vehicles and related legal structures and compliance with law and regulations; iv) inappropriate oversight of market, liquidity, credit, counterparty and operational risks; v) insufficient number of trading counterparties; and vi) breaching investment guidelines or restrictions |
|
- Consistent investment philosophy over 25 years with dedicated Emerging Markets focus including country visits and network of local offices - Funds in the same investment theme are managed by consistent investment management teams, and allocations approved by Investment Committees - Frequent and regular reviews of market and liquidity risk - Policies in place to cover conflicts, best execution and market abuse - Tools to manage liquidity issues as a result of redemptions including restrictions on illiquid exposures, swing pricing and ability to use in specie redemptions - Investment decisions are subject to pre-trade compliance - Legal team and use of external counsel to ensure appropriate documents are in place - Group Trading counterparty policy |
|
Description of principal risks |
|
Examples of associated controls and mitigants |
|
Operational risks (Responsibility: Group Risk and Compliance Committee) |
||
|
- Security of information including cyber security - Threat to business continuity affecting people, buildings and systems - Inaccurate or invalid data including manual processes / reporting, and transactions, static data and prices - Failure to book, process and settle trades appropriately - Failure of IT infrastructure, including inability to support business growth - Trading with unauthorised counterparties - Legal action, fraud or breach of contract perpetrated against the Group, funds or investments - Insufficient resources, which includes loss of key staff or inability to attract staff, constrains growth - Lack of understanding and compliance with global and local regulatory requirements, as well as conflicts of interest and treating customers fairly; and financial crime, which includes money laundering, bribery and corruption leading to high level publicity or regulatory sanction - Inappropriate accounting and/or tax practices lead to sanction - Inadequate oversight of Ashmore overseas offices - Ineffective or mismanaged third-party services - Inadequate management, oversight or documentation of new and existing funds - Inappropriate governance and oversight of people, departments and committees |
|
- Information security and data protection policies - BCP working group - Pricing Oversight Committee - Annual ISAE3402 process and report - Front office systems require trade booking and authorisation - Appropriate IT policies and procedures in place - Approved counterparty list - Independent Internal Audit department - Financial crime policy, which also covers service providers - Committee-based investment management reduces key man risk - Appropriate remuneration policy with emphasis on performance-related pay and long-dated deferral of equity awards - Insurance policies in place to ensure appropriate litigation cover - Compliance policies covering global and local offices. Adherence to regulatory requirements is closely managed through compliance monitoring programmes - Conflicts of interest policy - Anti-bribery and corruption procedures issued and adopted for investee companies where Ashmore has a controlling stake - Group accounting policies reviewed by Group Finance Director, Head of Finance and external auditor; signed off by external auditor and ARC - Group tax policy and dedicated in-house tax specialist; external tax advice sought where appropriate - Group Finance Director has oversight responsibility for overseas offices - Due diligence on all new third parties, and regular meetings / reviews of third-party service providers - Frequent and regular Product Committee meetings - Department policies and procedures reviewed at least annually |
Statement of Directors' responsibilities
The Directors are responsible for preparing the annual report and the Group and parent company financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and applicable law and have elected to prepare the parent company financial statements on the same basis.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit and loss for that period. In preparing each of the Group and parent company financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable, relevant and reliable;
- state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
- assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
- use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or to have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic report, Directors' report, Directors' remuneration report and corporate governance statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial report
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and
fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
- the Strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks
and uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance,
business model and strategy.
Peter Gibbs
Chairman
6 September 2017
Consolidated statement of comprehensive income
For the year ended 30 June 2017
|
|
Notes |
2017 |
2016 |
|
Management fees |
|
226.2 |
197.1 |
|
Performance fees |
|
28.3 |
10.4 |
|
Other revenue |
|
2.7 |
4.1 |
|
Total revenue |
|
257.2 |
211.6 |
|
Distribution costs |
|
(4.6) |
(1.2) |
|
Foreign exchange |
7 |
5.0 |
22.1 |
|
Net revenue |
|
257.6 |
232.5 |
|
|
|
|
|
|
Gains/(losses) on investment securities |
20 |
22.4 |
(5.7) |
|
Change in third-party interests in consolidated funds |
20 |
(12.5) |
3.4 |
|
Personnel expenses |
9 |
(67.8) |
(59.7) |
|
Other expenses |
11 |
(32.9) |
(32.6) |
|
Operating profit |
|
166.8 |
137.9 |
|
|
|
|
|
|
Finance income |
8 |
38.6 |
31.7 |
|
Finance expense |
8 |
- |
(0.4) |
|
Profit on disposal of joint ventures and subsidiaries |
26, 27 |
1.6 |
- |
|
Share of losses from associates and joint ventures |
27 |
(0.8) |
(1.7) |
|
Profit before tax |
|
206.2 |
167.5 |
|
|
|
|
|
|
Tax expense |
12 |
(36.7) |
(38.8) |
|
Profit for the year |
|
169.5 |
128.7 |
|
|
|
|
|
|
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 |
|
(16.7) |
27.5 |
|
Fair value reserve (available-for-sale financial assets): |
|
|
|
|
Net change in fair value |
|
2.9 |
1.1 |
|
Net amount transferred to profit or loss |
|
- |
0.3 |
|
Cash flow hedge intrinsic value gains/(losses) |
|
3.8 |
(3.9) |
|
Other comprehensive income, net of tax |
|
(10.0) |
25.0 |
|
Total comprehensive income for the year |
|
159.5 |
153.7 |
|
|
|
|
|
|
Profit attributable to: |
|
|
|
|
Equity holders of the parent |
|
167.6 |
127.8 |
|
Non-controlling interests |
|
1.9 |
0.9 |
|
Profit for the year |
|
169.5 |
128.7 |
|
|
|
|
|
|
Total comprehensive income attributable to: |
|
|
|
|
Equity holders of the parent |
|
157.8 |
152.0 |
|
Non-controlling interests |
|
1.7 |
1.7 |
|
Total comprehensive income for the year |
|
159.5 |
153.7 |
|
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic |
13 |
25.07p |
19.13p |
|
Diluted |
13 |
23.71p |
18.08p |
Consolidated balance sheet
As at 30 June 2017
|
|
Notes |
2017 |
2016 |
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Goodwill and intangible assets |
15 |
79.9 |
82.5 |
|
Property, plant and equipment |
16 |
1.6 |
2.2 |
|
Investment in associates and joint ventures |
27 |
2.3 |
6.3 |
|
Non-current asset investments |
20 |
22.5 |
11.7 |
|
Other receivables |
|
0.1 |
0.1 |
|
Deferred acquisition costs |
|
0.6 |
0.4 |
|
Deferred tax assets |
18 |
27.4 |
19.5 |
|
|
|
134.4 |
122.7 |
|
Current assets |
|
|
|
|
Investment securities |
20 |
231.2 |
143.7 |
|
Available-for-sale financial assets |
20 |
11.3 |
8.8 |
|
Fair value through profit or loss investments |
20 |
36.0 |
68.2 |
|
Trade and other receivables |
17 |
70.9 |
61.2 |
|
Derivative financial instruments |
21 |
0.3 |
- |
|
Cash and cash equivalents |
|
432.5 |
364.0 |
|
|
|
782.2 |
645.9 |
|
|
|
|
|
|
Non-current assets held for sale |
20 |
7.1 |
106.7 |
|
Total assets |
|
923.7 |
875.3 |
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
Capital and reserves - attributable to equity holders of the parent |
|
|
|
|
Issued capital |
22 |
- |
- |
|
Share premium |
|
15.7 |
15.7 |
|
Retained earnings |
|
703.2 |
645.7 |
|
Foreign exchange reserve |
|
4.6 |
21.1 |
|
Available-for-sale fair value reserve |
|
1.1 |
(1.8) |
|
Cash flow hedging reserve |
|
(0.2) |
(4.0) |
|
|
|
724.4 |
676.7 |
|
Non-controlling interests |
|
2.3 |
3.3 |
|
Total equity |
|
726.7 |
680.0 |
|
Liabilities |
|
|
|
|
Non-current liabilities |
|
|
|
|
Deferred tax liabilities |
18 |
9.2 |
5.2 |
|
|
|
9.2 |
5.2 |
|
Current liabilities |
|
|
|
|
Current tax |
|
14.7 |
24.8 |
|
Third-party interests in consolidated funds |
20 |
108.9 |
75.6 |
|
Derivative financial instruments |
21 |
- |
4.5 |
|
Trade and other payables |
25 |
64.2 |
55.4 |
|
|
|
187.8 |
160.3 |
|
|
|
|
|
|
Non-current liabilities held for sale |
20 |
- |
29.8 |
|
Total liabilities |
|
197.0 |
195.3 |
|
Total equity and liabilities |
|
923.7 |
875.3 |
Approved by the Board on 6 September 2017 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 2017
|
|
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 2015 |
- |
15.7 |
649.3 |
(5.6) |
(3.2) |
(0.1) |
656.1 |
14.0 |
670.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
127.8 |
- |
- |
- |
127.8 |
0.9 |
128.7 |
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences arising |
- |
- |
- |
26.7 |
- |
- |
26.7 |
0.8 |
27.6 |
|
Net fair value gain on available-for-sale assets including tax |
- |
- |
- |
- |
1.1 |
- |
1.1 |
- |
1.1 |
|
Net gains reclassified from available-for-sale reserve to comprehensive income |
- |
- |
- |
- |
0.3 |
- |
0.3 |
- |
0.3 |
|
Cash flow hedge intrinsic value losses |
- |
- |
- |
- |
- |
(3.9) |
(3.9) |
- |
(3.9) |
|
Total comprehensive income/(loss) |
- |
- |
127.8 |
26.7 |
1.4 |
(3.9) |
152.0 |
1.7 |
153.7 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
|
|
Purchase of own shares |
- |
- |
(22.2) |
- |
- |
- |
(22.2) |
- |
(22.2) |
|
Acquisition of non-controlling interests |
- |
- |
(5.1) |
- |
- |
- |
(5.1) |
(1.2) |
(6.3) |
|
Sale to non-controlling interests |
|
|
- |
- |
- |
- |
- |
0.4 |
0.4 |
|
Share-based payments |
- |
- |
11.9 |
- |
- |
- |
11.9 |
(7.4) |
4.5 |
|
Proceeds received on exercise of vested options |
- |
- |
0.1 |
- |
- |
- |
0.1 |
- |
0.1 |
|
Dividends to equity holders |
- |
- |
(116.1) |
- |
- |
- |
(116.1) |
- |
(116.1) |
|
Dividends to non-controlling interests |
- |
- |
- |
- |
- |
- |
- |
(4.2) |
(4.2) |
|
Total contributions and distributions |
- |
- |
(131.4) |
- |
- |
- |
(131.4) |
(12.4) |
(143.8) |
|
Balance at 30 June 2016 |
- |
15.7 |
645.7 |
21.1 |
(1.8) |
(4.0) |
676.7 |
3.3 |
680.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
167.6 |
- |
- |
- |
167.6 |
1.9 |
169.5 |
|
Other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation differences arising on foreign operations |
- |
- |
- |
(16.5)
|
-
|
- |
(16.5) |
(0.2) |
(16.7)
|
|
Net fair value gain on available-for-sale assets including tax |
- |
- |
- |
-
|
2.9
|
- |
2.9 |
- |
2.9
|
|
Cash flow hedge intrinsic value gains |
- |
- |
- |
- |
- |
3.8 |
3.8 |
- |
3.8 |
|
Total comprehensive income/(loss) |
- |
- |
167.6 |
(16.5) |
2.9 |
3.8 |
157.8 |
1.7 |
159.5 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
|
|
Purchase of own shares |
- |
- |
(11.8) |
- |
- |
- |
(11.8) |
- |
(11.8) |
|
Acquisition of non-controlling interests |
- |
- |
- |
- |
- |
- |
- |
(0.4) |
(0.4) |
|
Share-based payments |
- |
- |
18.3 |
- |
- |
- |
18.3 |
- |
18.3 |
|
Dividends to equity holders |
- |
- |
(116.6) |
- |
- |
- |
(116.6) |
- |
(116.6) |
|
Dividends to non-controlling interests |
- |
- |
- |
- |
- |
- |
- |
(2.3) |
(2.3) |
|
Total contributions and distributions |
- |
- |
(110.1) |
- |
- |
- |
(110.1) |
(2.7) |
(112.8) |
|
Balance at 30 June 2017 |
- |
15.7 |
703.2 |
4.6 |
1.1 |
(0.2) |
724.4 |
2.3 |
726.7 |
Consolidated cash flow statement
For the year ended 30 June 2017
|
|
2017 |
2016 |
|
Operating activities |
|
|
|
Operating profit |
166.8 |
137.9 |
|
Adjustments for non-cash items: |
|
|
|
Depreciation and amortisation |
5.5 |
5.1 |
|
Accrual for variable compensation |
24.4 |
35.6 |
|
Unrealised foreign exchange gains |
(8.7) |
(20.4) |
|
Other non-cash items |
(11.0) |
(7.0) |
|
Cash generated from operations before working capital changes |
177.0 |
151.2 |
|
Changes in working capital: |
|
|
|
Decrease/(increase) in trade and other receivables |
(9.7) |
2.9 |
|
Decrease/(increase) in derivative financial instruments |
(4.8) |
4.5 |
|
Increase/(decrease) in trade and other payables |
8.8 |
(33.4) |
|
Cash generated from operations |
171.3 |
125.2 |
|
Taxes paid |
(48.0) |
(26.7) |
|
Net cash from operating activities |
123.3 |
98.5 |
|
|
|
|
|
Investing activities |
|
|
|
Interest received |
8.8 |
6.8 |
|
Dividends received |
0.4 |
- |
|
Proceeds on disposal of joint ventures and subsidiaries |
4.8 |
- |
|
Purchase of non-current asset investments |
(8.8) |
(3.2) |
|
Purchase of financial assets held for sale |
(26.9) |
(42.6) |
|
Purchase of available-for-sale financial assets |
- |
(0.2) |
|
Purchase of fair value through profit or loss investments |
(14.0) |
(1.4) |
|
Purchase of investment securities |
(17.0) |
(55.7) |
|
Sale of non-current asset investments |
0.5 |
- |
|
Sale of financial assets held for sale |
47.9 |
9.3 |
|
Sale of available-for-sale financial assets |
- |
3.3 |
|
Sale of fair value through profit or loss investments |
43.2 |
22.0 |
|
Sale of investment securities |
28.1 |
33.5 |
|
Net cash from initial consolidation of seed capital investments |
8.1 |
1.5 |
|
Purchase of property, plant and equipment |
(0.4) |
(0.6) |
|
Net cash generated/(used) in investing activities |
74.7 |
(27.3) |
|
|
|
|
|
Financing activities |
|
|
|
Dividends paid to equity holders |
(116.6) |
(116.1) |
|
Dividends paid to non-controlling interests |
(2.3) |
(4.2) |
|
Third-party subscriptions into consolidated funds |
18.7 |
49.1 |
|
Third-party redemptions from consolidated funds |
(8.6) |
(11.0) |
|
Distributions paid by consolidated funds |
(3.1) |
(3.5) |
|
Acquisition of interest from non-controlling interests |
(0.4) |
(1.2) |
|
Sale of interest to non-controlling interests |
- |
0.4 |
|
Purchase of own shares |
(11.8) |
(22.2) |
|
Net cash used in financing activities |
(124.1) |
(108.7) |
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
73.9 |
(37.5) |
|
|
|
|
|
Cash and cash equivalents at beginning of year |
364.0 |
380.8 |
|
Effect of exchange rate changes on cash and cash equivalents |
(5.4) |
20.7 |
|
Cash and cash equivalents at end of year |
432.5 |
364.0 |
|
|
|
|
|
Cash and cash equivalents at end of year comprise: |
|
|
|
Cash at bank and in hand |
71.1 |
52.5 |
|
Daily dealing liquidity funds |
216.5 |
103.7 |
|
Deposits |
144.9 |
207.8 |
|
|
432.5 |
364.0 |
Company balance sheet
As at 30 June 2017
|
|
Notes |
2017 |
2016 |
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Goodwill |
15 |
4.1 |
4.1 |
|
Property, plant and equipment |
16 |
0.7 |
1.1 |
|
Investment in subsidiaries |
26 |
19.9 |
20.0 |
|
Deferred acquisition costs |
|
0.7 |
0.4 |
|
Deferred tax assets |
18 |
11.5 |
8.2 |
|
|
|
36.9 |
33.8 |
|
Current assets |
|
|
|
|
Trade and other receivables |
17 |
398.0 |
285.4 |
|
Cash and cash equivalents |
|
229.7 |
301.4 |
|
|
|
627.7 |
586.8 |
|
Total assets |
|
664.6 |
620.6 |
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
Capital and reserves |
|
|
|
|
Issued capital |
22 |
- |
- |
|
Share premium |
|
15.7 |
15.7 |
|
Retained earnings |
|
580.3 |
554.8 |
|
Total equity attributable to equity holders of the Company |
|
596.0 |
570.5 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
25 |
68.6 |
50.1 |
|
|
|
68.6 |
50.1 |
|
Total equity and liabilities |
|
664.6 |
620.6 |
Approved by the Board on 6 September 2017 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 2017
|
|
Issued |
Share |
Retained earnings |
Total equity attributable to equity holders of the parent £m |
|
Balance at 30 June 2015 |
- |
15.7 |
547.0 |
562.7 |
|
|
|
|
|
|
|
Profit for the year |
- |
- |
125.1 |
125.1 |
|
Purchase of own shares |
- |
- |
(22.2) |
(22.2) |
|
Share-based payments |
- |
- |
21.0 |
21.0 |
|
Dividends to equity holders |
- |
- |
(116.1) |
(116.1) |
|
Balance at 30 June 2016 |
- |
15.7 |
554.8 |
570.5 |
|
|
|
|
|
|
|
Profit for the year |
- |
- |
140.5 |
140.5 |
|
Purchase of own shares |
- |
- |
(11.8) |
(11.8) |
|
Share-based payments |
- |
- |
13.4 |
13.4 |
|
Dividends to equity holders |
- |
- |
(116.6) |
(116.6) |
|
Balance at 30 June 2017 |
- |
15.7 |
580.3 |
596.0 |
Company cash flow statement
For the year ended 30 June 2017
|
|
2017 |
2016 |
|
Operating activities |
|
|
|
Operating profit |
145.0 |
137.6 |
|
Adjustments for: |
|
|
|
Depreciation and amortisation |
0.5 |
0.7 |
|
Accrual for variable compensation |
15.4 |
27.1 |
|
Unrealised foreign exchange gains |
(5.9) |
(46.2) |
|
Dividends received from subsidiaries |
(99.2) |
(89.6) |
|
Cash generated from operations before working capital changes |
58.0 |
29.6 |
|
Changes in working capital: |
|
|
|
Decrease/(increase) in trade and other receivables |
(36.0) |
49.8 |
|
Increase/(decrease) in trade and other payables |
18.5 |
12.2 |
|
Cash generated from operations |
38.3 |
91.6 |
|
Taxes paid |
(8.8) |
(4.3) |
|
Net cash from operating activities |
29.5 |
87.3 |
|
|
|
|
|
Investing activities |
|
|
|
Interest received |
1.7 |
0.8 |
|
Loans repaid by/(advanced to) subsidiaries |
(76.6) |
16.6 |
|
Dividends received from subsidiaries |
92.3 |
189.6 |
|
Purchase of property, plant and equipment |
(0.1) |
(0.6) |
|
Net cash from investing activities |
17.3 |
206.4 |
|
|
|
|
|
Financing activities |
|
|
|
Dividends paid |
(116.6) |
(116.1) |
|
Purchase of own shares |
(11.8) |
(22.2) |
|
Net cash used in financing activities |
(128.4) |
(138.3) |
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
(81.6) |
155.4 |
|
|
|
|
|
Cash and cash equivalents at beginning of year |
301.4 |
114.5 |
|
Effect of exchange rate changes on cash and cash equivalents |
9.9 |
31.5 |
|
Cash and cash equivalents at end of year |
229.7 |
301.4 |
|
|
|
|
|
Cash and cash equivalents at end of year comprise: |
|
|
|
Cash at bank and in hand |
19.3 |
9.4 |
|
Daily dealing liquidity funds |
80.4 |
93.0 |
|
Deposits |
130.0 |
199.0 |
|
|
229.7 |
301.4 |
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 2017 were authorised for issue by the Board of Directors on 6 September 2017.
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 2017 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 certain financial assets that are available-for-sale or classified as 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 32.
3) New standards and interpretations not yet adopted
At the date of authorisation of these consolidated financial statements, the following standards and interpretations relevant to the Group's operations were issued by the International Accounting Standards Board (IASB) but are not yet mandatory:
- IFRS 9 Financial Instruments effective for annual periods beginning on or after 1 January 2018
- IFRS 15 Revenue from Contracts with Customers effective for annual periods beginning on or after 1 January 2018
- IFRS 16 Leases effective for annual periods beginning on or after 1 January 2019, subject to EU endorsement.
The Group completed an assessment of the impact of the new standards on its financial statements during the year. Overall, the Group does not expect the implementation of these standards to have a material impact on its results, net assets or regulatory capital requirements. However, the Group expects to update the relevant accounting policies when these standards come into force, as well as making necessary presentational changes on the face of the consolidated statement of comprehensive income and consolidated balance sheet.
- IFRS 9 Financial Instruments has been endorsed by the EU and replaces the classification and measurement models for financial instruments in IAS 39 Financial Instruments: Recognition and Measurement with three classification categories: amortised cost, fair value through profit or loss and fair value through other comprehensive income. Under IFRS 9, the Group's business model and the contractual cash flows arising from its investments in financial instruments determine the appropriate classification. All equity investments within the scope of IFRS 9 are measured at fair value, with gains or losses reported either in the statement of comprehensive income or, by election, through other comprehensive income. The impact will be on classification and presentation of the Group's seed capital investments, with limited changes in measurement basis for available-for sale financial assets that will be measured at fair value through profit or loss.
In addition, IFRS 9 introduces an expected loss model for the assessment of impairment. The current incurred loss model under IAS 39 requires the Group to recognise impairment losses when there is objective evidence that an asset is impaired. The new impairment model in IFRS 9 is based on the premise of providing for expected losses, even in the absence of a default event. The Group does not anticipate the impact of the expected losses to be material as a result of the nature of assets held and the low level of historical defaults.
- IFRS 15 Revenue from Contracts with Customers has been endorsed by the EU and deals with revenue recognition. The standard provides a single, principles-based five-step model to be applied to all contracts with customers to recognise revenue in a manner that depicts the pattern of transfer of services to the customer. IFRS 15 replaces IAS 18 Revenue and IAS 11 Construction Contracts and related interpretations. The standard provides guidance on topics such as the point at which revenue is recognised, accounting for variable consideration such as performance-based incentive fees, and costs related to obtaining and fulfilling investment management contracts. The Group has assessed that IFRS 15 will not have a material impact on its results or a material change to the estimation of management fee or performance fees revenue; however, additional note disclosure will be required to update the Group's revenue recognition policy when the standard is adopted.
- IFRS 16 Leases was issued on 13 January 2016 and replaces IAS 17 Leases. IFRS 16 requires all operating leases in excess of one year, where the Group is the lessee, to be included on the Group's statement of financial position, and recognised as a right-of-use (ROU) asset and a related lease liability representing the obligation to make lease payments. The ROU asset will be amortised on a straight-line basis with the lease liability being amortised using the effective interest method. Optional exemptions are available under IFRS 16 for short-term leases (lease term of less than 12 months) and for small-value leases. Based on the preliminary assessment, the Group expects its existing operating lease arrangements as a lessee (refer to note 30) to be recognised as ROU assets with corresponding lease liabilities under the new standard. The operating lease commitments on an undiscounted basis amount to approximately 1% of the consolidated total assets and 7% of consolidated total liabilities. The Group will complete a detailed impact analysis closer to the adoption of IFRS 16.
No other standards or interpretations issued and not yet effective are expected to have an impact on the Group's consolidated financial statements.
4) Significant accounting policies
The following principal accounting policies have been applied consistently where applicable to all years presented in dealing with items considered material in relation to the Group and Company financial statements, unless otherwise stated.
Basis of consolidation
The consolidated financial statements of the Group comprise the financial statements of the Company and its subsidiaries, associates and joint ventures. This includes an Employee Benefit Trust (EBT) established for the employee share-based awards and consolidated investment funds.
Interests in subsidiaries
Subsidiaries are entities, including investment funds, over which the Group has control as defined by IFRS 10. The Group has control if it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date when control ceases. The Group reassesses whether or not it controls an entity if facts and circumstances indicate that there are changes to one or more of the elements of control.
The profit or loss and each component of other comprehensive income are attributed to the equity holders of the Company and to any non-controlling interests. Based on their nature, the interests of third parties in consolidated funds are classified as liabilities and appear as 'Third-party interests in consolidated funds' on the Group's balance sheet. Associates and joint ventures are presented as single-line items in the statement of comprehensive income and balance sheet (refer to note 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 2017.
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 Sociétés 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, carried interest, 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 currency 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. However, foreign currency differences arising from the translation of the following items are recognised in other comprehensive income:
- available-for-sale equity instruments; and
- qualifying cash flow hedges to the extent that the hedge is effective.
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.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequently, changes to the fair value of the contingent consideration that is deemed to be a liability will be recognised in accordance with IAS 39 in comprehensive income. If the contingent consideration is classified as equity, it will not be remeasured and settlement is accounted for within equity.
If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree's employees (acquiree's awards) and relate to past services, all or a portion of the amount of the acquirer's replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on market-based value of the replacement awards compared with the market-based value of the acquiree's awards and the extent to which the replacement awards relate to pre-combination service.
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, which have been assessed as being eight years.
Non-controlling interests (NCI)
NCI are measured at their proportionate share of the acquiree's identifiable net assets at the acquisition date. 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 contractual right to benefit from providing investment management services and are charged as the related revenue is recognised.
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 IAS 39 Financial Instruments: Recognition and Measurement and IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Financial assets
The Group classifies its financial assets into the following categories: financial assets held for sale, investment securities designated as fair value through profit or loss (FVTPL), fair value through profit or loss investments, available-for-sale financial assets and non-current financial assets held for sale.
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 at fair value through profit or loss in accordance with IAS 39. Where the assets are not readily realisable, they are recognised as non-current asset investments. 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 fair value through profit or loss investments in accordance with IAS 39. Subsequent movements will be recognised in accordance with the Group's accounting policy for the newly adopted classification.
Available-for-sale financial assets
Available-for-sale financial assets (AFS) include readily realisable interests in seeded funds that are either allocated specifically to this category or cannot be assigned to any other category. They are carried at fair value and changes in fair value are recognised in other comprehensive income, until the asset is disposed of or impaired, at which time the cumulative gain or loss previously recognised in other comprehensive income is included in profit for the year as part of comprehensive income. Dividend income and impairment losses are recognised in the consolidated statement of comprehensive income.
Financial assets designated as FVTPL
Financial assets designated as FVTPL include certain readily realisable interests in seeded funds, non-current asset investments 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) FVTPL investments
The Group classifies new readily realisable interests in seeded funds as FVTPL investments 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.
(ii) Non-current asset investments
Non-current asset investments 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.
(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.
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. The resulting adjustment is recognised as interest expense or interest income. Subsequent to initial recognition these assets are measured at amortised cost less any impairment.
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.
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.
Other financial liabilities
Other financial liabilities including trade and other payables are subsequently measured at amortised cost using the effective interest rate method.
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 open-ended 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 cash flow hedge accounting when the transactions meet 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
- 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
General
At each reporting date, the carrying amounts of the Group's assets are reviewed to assess whether there is any objective evidence of impairment in the value of financial assets classified as either available-for-sale or as trade and other receivables. Impairment losses are recognised if an event has occurred that will have an adverse impact on the expected future cash flows of an asset and the expected impact can be reliably estimated. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount.
The recoverable amount of an asset is the higher of an asset's fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using the Group's weighted average cost of capital. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Impairment losses on available-for-sale financial assets are measured as the difference between cost and the current fair value. Where there is evidence that the available-for-sale financial asset is impaired, the cumulative loss that had been previously recognised in other comprehensive income is reclassified from the available-for-sale fair value reserve and recognised in the consolidated statement of comprehensive income.
Impairment losses in respect of assets other than goodwill are measured as the difference between the carrying amount of the financial asset and the present value of estimated cash flows discounted at the asset's original effective interest rate. Such impairment losses are recognised in the consolidated statement of other comprehensive income and are recognised against the carrying amount of the impaired asset on the consolidated statement of financial position. Interest on the impaired asset continues to be accrued on the reduced carrying amount based on the original effective interest rate of the asset.
Subsequent increases in fair value of previously impaired available-for-sale financial assets are reported as fair value gains in the available-for-sale fair value reserve through other comprehensive income and not separately identified as an impairment reversal.
For all other assets other than goodwill, if in a subsequent year the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed, but is limited to the extent that the value of the asset may not exceed the original carrying amount that would have been determined, net of depreciation or amortisation, had no impairment occurred.
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.
Revenue
Revenue comprises the fair value of the consideration received or receivable for the provision of investment management services, and includes management fees, performance fees and other revenue. 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.
Specific revenue recognition policies are:
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 accrued over the period for which the service is provided. 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 recognised when the quantum of the fee can be estimated reliably and it is probable that the fee will crystallise. This is usually at the end of the performance period or upon early redemption by a client.
Other revenue
Other revenue includes transaction, structuring and administration fees, and reimbursement by funds of costs incurred by the Group. This revenue is recognised when the related services are provided.
Distribution costs
Distribution costs are cost of sales payable to third-parties and are recognised over the period for 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, realised gains on available-for-sale financial assets and both realised and unrealised gains on held for sale assets and investments measured at FVTPL.
Finance expense includes realised losses on available-for-sale financial assets and both realised and unrealised losses on held for sale assets and investments measured at 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 location of the Group's non-current assets at year end other than financial instruments, deferred tax assets and post-employment benefit assets is shown in the table below. Disclosures relating to revenue are in note 6.
Analysis of non-current assets by geography
|
|
2017 |
2016 |
|
United Kingdom |
7.8 |
12.1 |
|
United States |
76.1 |
78.8 |
|
Other |
0.5 |
0.5 |
|
Total non-current assets |
84.4 |
91.4 |
6) Revenue
Management fees are accrued throughout the year in line with prevailing levels of assets under management and performance fees are recognised when they can be estimated reliably and it is probable that they will crystallise. The Group is not considered to be reliant on any single source of revenue. During the year, none of the Group's funds (FY2015/16: 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
|
|
2017 |
2016 |
|
United Kingdom |
232.8 |
194.0 |
|
United States |
8.7 |
9.2 |
|
Other |
15.7 |
8.4 |
|
Total revenue |
257.2 |
211.6 |
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 2017 |
Closing rate |
Average rate year ended |
Average rate year ended |
|
US dollar |
1.2946 |
1.3234 |
1.2766 |
1.4759 |
|
Euro |
1.1426 |
1.1970 |
1.1671 |
1.3359 |
|
Indonesian rupiah |
17,340 |
17,482 |
16,918 |
20,172 |
|
Colombian peso |
3,965 |
3,866 |
3,788 |
4,456 |
Foreign exchange gains and losses are shown below.
|
|
2017 |
2016 |
|
Net realised and unrealised hedging gains/(losses) |
(2.8) |
1.1 |
|
Translation gains/(losses) on non-Sterling denominated monetary assets and liabilities |
7.8 |
21.0 |
|
Total foreign exchange gains/(losses) |
5.0 |
22.1 |
8) Finance income and expense
|
|
2017 |
2016 |
|
Finance income |
|
|
|
Interest income |
10.4 |
6.7 |
|
Net realised gains on seed capital investments measured at fair value |
20.8 |
1.4 |
|
Net unrealised gains on seed capital investments measured at fair value |
7.4 |
23.4 |
|
Total finance income |
38.6 |
31.5 |
|
Finance expense |
|
|
|
Net realised losses on disposal of available-for-sale financial assets |
- |
(0.2) |
|
Total finance expense |
- |
(0.2) |
|
Net finance income |
38.6 |
31.3 |
9) Personnel expenses
Personnel expenses during the year comprised the following:
|
|
2017 |
2016 |
|
Wages and salaries |
19.6 |
19.1 |
|
Performance-related cash bonuses |
18.5 |
24.9 |
|
Share-based payments |
24.4 |
10.7 |
|
Social security costs |
1.8 |
1.8 |
|
Pension costs |
1.6 |
1.6 |
|
Other costs |
1.9 |
1.6 |
|
Total personnel expenses |
67.8 |
59.7 |
Number of employees
The number of employees of the Group (including Executive Directors) during the reporting year was as follows:
|
|
Average for the year ended |
Average for the year |
At |
At |
|
Total employees |
256 |
277 |
252 |
266 |
Directors' remuneration
There are retirement benefits accruing to two Executive Directors under a defined contribution scheme (FY2015/16: 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 |
2017 |
2016 |
|
Omnibus Plan |
24.2 |
25.8 |
|
Ashmore Equities Investment Management (US) L.L.C (AEIM) operating agreement |
- |
0.1 |
|
Phantom Bonus Plan |
0.2 |
0.2 |
|
Total related to compensation awards |
24.4 |
26.1 |
|
Related to acquisition of AEIM |
- |
(15.4) |
|
Total share-based payments expense |
24.4 |
10.7 |
The total expense recognised for the year in respect of equity-settled share-based payment awards was £21.3 million (FY2015/16:
£10.5 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 |
2017 |
2016 |
|
2011 |
- |
2.8 |
|
2012 |
2.6 |
2.8 |
|
2013 |
3.7 |
3.8 |
|
2014 |
2.3 |
2.4 |
|
2015 |
3.5 |
3.0 |
|
2016 |
3.4 |
8.3 |
|
2017 |
6.0 |
- |
|
Total omnibus share-based payments expense reported in comprehensive income |
21.5 |
23.1 |
Awards outstanding under the Omnibus Plan were as follows:
i) Equity-settled awards
|
Group and Company |
2017 |
2017 |
2016 |
2016 |
|
Restricted share awards |
|
|
|
|
|
At the beginning of the year |
22,929,174 |
£3.18 |
20,524,634 |
£3.46 |
|
Granted |
4,378,988 |
£3.40 |
7,366,910 |
£2.43 |
|
Vested |
(3,426,172) |
£3.87 |
(3,058,877) |
£3.19 |
|
Forfeited |
(1,843,890) |
£3.32 |
(1,903,493) |
£3.21 |
|
Awards outstanding at year end |
22,038,100 |
£3.14 |
22,929,174 |
£3.18 |
|
|
|
|
|
|
|
Bonus share awards |
|
|
|
|
|
At the beginning of the year |
8,438,295 |
£3.15 |
7,404,574 |
£3.43 |
|
Granted |
1,569,761 |
£3.39 |
2,527,672 |
£2.43 |
|
Vested |
(1,739,720) |
£3.86 |
(1,493,951) |
£3.18 |
|
Forfeited |
- |
- |
- |
- |
|
Awards outstanding at year end |
8,268,336 |
£3.10 |
8,438,295 |
£3.15 |
|
|
|
|
|
|
|
Matching share awards |
|
|
|
|
|
At the beginning of the year |
8,438,295 |
£3.18 |
7,404,574 |
£3.43 |
|
Granted |
1,574,860 |
£3.39 |
2,527,672 |
£2.43 |
|
Vested |
(1,116,079) |
£3.92 |
(1,401,866) |
£3.17 |
|
Forfeited |
(623,641) |
£3.75 |
(92,085) |
£3.32 |
|
Awards outstanding at year end |
8,273,435 |
£3.14 |
8,438,295 |
£3.18 |
|
Total |
38,579,871 |
£3.18 |
39,805,764 |
£3.18 |
ii) Cash-settled awards
|
Group and Company |
2017 |
2017 |
2016 |
2016 |
|
Restricted share awards |
|
|
|
|
|
At the beginning of the year |
269,754 |
£3.72 |
582,848 |
£3.48 |
|
Granted |
27,700 |
£3.40 |
38,504 |
£2.43 |
|
Vested |
- |
- |
(45,325) |
£3.50 |
|
Forfeited |
(162,470) |
£3.94 |
(306,273) |
£3.14 |
|
Awards outstanding at year end |
134,984 |
£3.72 |
269,754 |
£3.72 |
|
|
|
|
|
|
|
Bonus share awards |
|
|
|
|
|
At the beginning of the year |
190,576 |
£3.78 |
382,985 |
£3.49 |
|
Granted |
11,530 |
£3.40 |
6,179 |
£2.43 |
|
Vested |
(121,852) |
£3.94 |
(198,588) |
£3.17 |
|
Forfeited |
- |
- |
- |
- |
|
Awards outstanding at year end |
80,254 |
£3.78 |
190,576 |
£3.78 |
|
|
|
|
|
|
|
Matching share awards |
|
|
|
|
|
At the beginning of the year |
190,576 |
£3.78 |
382,985 |
£3.49 |
|
Granted |
11,530 |
£3.40 |
6,179 |
£2.43 |
|
Vested |
- |
- |
- |
- |
|
Forfeited |
(121,852) |
£3.94 |
(198,588) |
£3.17 |
|
Awards outstanding at year end |
80,254 |
£3.78 |
190,576 |
£3.78 |
|
Total |
295,492 |
£3.75 |
650,906 |
£3.75 |
iii) Total awards
|
Group and Company |
2017 |
2017 |
2016 |
2016 |
|
Restricted share awards |
|
|
|
|
|
At the beginning of the year |
23,198,928 |
£3.19 |
21,107,482 |
£3.46 |
|
Granted |
4,406,688 |
£3.40 |
7,405,414 |
£2.43 |
|
Vested |
(3,426,172) |
£3.87 |
(3,104,202) |
£3.20 |
|
Forfeited |
(2,006,360) |
£3.37 |
(2,209,766) |
£3.20 |
|
Awards outstanding at year end |
22,173,084 |
£3.14 |
23,198,928 |
£3.19 |
|
|
|
|
|
|
|
Bonus share awards |
|
|
|
|
|
At the beginning of the year |
8,628,871 |
£3.17 |
7,787,559 |
£3.43 |
|
Granted |
1,581,291 |
£3.39 |
2,533,851 |
£2.43 |
|
Vested |
(1,861,572) |
£3.87 |
(1,692,539) |
£3.18 |
|
Forfeited |
- |
- |
- |
- |
|
Awards outstanding at year end |
8,348,590 |
£3.11 |
8,628,871 |
£3.17 |
|
|
|
|
|
|
|
Matching share awards |
|
|
|
|
|
At the beginning of the year |
8,628,871 |
£3.20 |
7,787,559 |
£3.43 |
|
Granted |
1,586,390 |
£3.39 |
2,533,851 |
£2.43 |
|
Vested |
(1,116,079) |
£3.92 |
(1,401,866) |
£3.17 |
|
Forfeited |
(745,493) |
£3.78 |
(290,673) |
£3.22 |
|
Awards outstanding at year end |
8,353,689 |
£3.14 |
8,628,871 |
£3.20 |
|
Total |
38,875,363 |
£3.13 |
40,456,670 |
£3.19 |
The weighted average share price of awards granted to employees under the Omnibus Plan during the year was £3.40 (FY2015/16: £2.43), 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 in the Annual Report and Accounts.
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 consolidated balance sheet is £0.4 million (30 June 2016: £0.6 million) of which £nil (30 June 2016: £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.
Other arrangements
AEIM operating agreement
All remaining unvested units granted under the terms of AEIM's operating agreement were forfeited during the year. There were no outstanding units as at 30 June 2017.
11) Other expenses
Other expenses consist of the following:
|
|
2017 |
2016 |
|
Travel |
2.2 |
3.6 |
|
Professional fees |
4.9 |
4.6 |
|
Information technology and communications |
5.2 |
5.4 |
|
Amortisation of intangible assets (note 15) |
4.5 |
3.9 |
|
Operating leases |
3.5 |
3.3 |
|
Premises-related costs |
1.2 |
1.2 |
|
Insurance |
1.0 |
1.1 |
|
Auditor's remuneration (see below) |
0.6 |
0.8 |
|
Depreciation of property, plant and equipment (note 16) |
1.0 |
1.2 |
|
Consolidated funds (note 20) |
4.9 |
2.4 |
|
Other expenses |
3.9 |
5.1 |
|
|
32.9 |
32.6 |
Auditor's remuneration
|
|
2017 |
2016 |
|
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 |
0.2 |
0.2 |
|
|
|
|
|
Fees for non-audit services: |
|
|
|
- Fees payable to the Company's auditor and its associates for tax services |
- |
0.2 |
|
- Fees payable to the Company's auditor and its associates for other services |
0.2 |
0.2 |
|
|
0.6 |
0.8 |
12) Taxation
Analysis of tax charge for the year:
|
|
2017 |
2016 |
|
Current tax |
|
|
|
UK corporation tax on profits for the year |
31.3 |
31.4 |
|
Overseas corporation tax charge |
7.9 |
4.8 |
|
Adjustments in respect of prior years |
1.5 |
0.7 |
|
|
40.7 |
36.9 |
|
Deferred tax |
|
|
|
Origination and reversal of temporary differences (see note 18) |
(3.2) |
1.0 |
|
Effect on deferred tax balance of changes in corporation tax rates |
(0.8) |
0.9 |
|
Tax expense |
36.7 |
38.8 |
Factors affecting tax charge for the year
|
|
2017 |
2016 |
|
Profit before tax |
206.2 |
167.5 |
|
|
|
|
|
Profit on ordinary activities multiplied by the blended UK tax rate of 19.75% (FY2015/16: 20.00%) |
40.7 |
33.5 |
|
|
|
|
|
Effects of: |
|
|
|
Non-deductible expenses |
0.2 |
4.7 |
|
Deduction in respect of vested shares/exercised options (Part 12, Corporation Tax Act 2009) |
(2.8) |
(2.8) |
|
Different rate of taxes on overseas profits |
1.4 |
1.5 |
|
Non-taxable income |
(4.1) |
- |
|
Tax relief on amortisation and impairment of goodwill and intangibles |
- |
(1.2) |
|
Effect on deferred tax balance of changes in corporation tax rates |
(0.8) |
0.9 |
|
Other items |
0.5 |
1.5 |
|
Adjustments in respect of prior years |
1.6 |
0.7 |
|
Tax expense |
36.7 |
38.8 |
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 equity/other comprehensive income is as follows:
|
|
2017 |
2016 |
|
Current tax on foreign exchange gains |
0.1 |
0.9 |
|
Deferred tax on seed capital investments |
- |
1.0 |
|
Tax expense recognised in equity/other comprehensive income |
0.1 |
1.9 |
A reduction to the main rate of UK corporation tax from 20% was enacted in the Finance Act 2013 and became effective from 1 April 2015. 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 2017.
13) Earnings per share
Basic earnings per share at 30 June 2017 of 25.07 pence (30 June 2016: 19.13 pence) is calculated by dividing the profit after tax for the financial period attributable to equity holders of the parent of £167.6 million (FY2015/16: £127.8 million) by the weighted average number of ordinary shares in issue during the period, 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.
|
|
2017 |
2016 |
|
Weighted average number of ordinary shares used in the calculation of basic earnings per share |
668,488,046 |
667,777,465 |
|
Effect of dilutive potential ordinary shares - share awards |
38,451,642 |
38,958,842 |
|
Weighted average number of ordinary shares used in the calculation of diluted earnings per share |
706,939,688 |
706,736,307 |
14) Dividends
Dividends paid in the year
|
Company |
2017 |
2016 |
|
Final dividend for FY2015/16 - 12.10p (FY2014/15: 12.10p) |
84.9 |
84.5 |
|
Interim dividend for FY2016/17 - 4.55p (FY2015/16: 4.55p) |
31.7 |
31.6 |
|
|
116.6 |
116.1 |
In addition, the Group paid £2.3 million (FY2015/16: £4.2 million) of dividends to non-controlling interests.
Dividends declared/proposed in respect of the year
|
Company |
2017 |
2016 |
|
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 2017, the Board proposed a final dividend of 12.10 pence per share for the year ended 30 June 2017. 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 £84.6 million.
15) Goodwill and intangible assets
|
Group |
Goodwill |
Fund management relationships |
Total |
|
Cost - (at original exchange rate) |
|
|
|
|
At 30 June 2015, 30 June 2016 and 30 June 2017 |
57.5 |
39.5 |
97.0 |
|
|
|
|
|
|
Accumulated amortisation and impairment |
|
|
|
|
At 30 June 2015 |
- |
(27.2) |
(27.2) |
|
Amortisation charge for the year |
- |
(3.9) |
(3.9) |
|
At 30 June 2016 |
- |
(31.1) |
(31.1) |
|
Amortisation charge for the year |
- |
(4.5) |
(4.5) |
|
At 30 June 2017 |
- |
(35.6) |
(35.6) |
|
|
|
|
|
|
Net book value |
|
|
|
|
At 30 June 2015 |
60.0 |
14.1 |
74.1 |
|
Accumulated amortisation for the year |
- |
(3.9) |
(3.9) |
|
Foreign exchange revaluation through reserves* |
10.1 |
2.2 |
12.3 |
|
At 30 June 2016 |
70.1 |
12.4 |
82.5 |
|
Accumulated amortisation for the year |
- |
(4.5) |
(4.5) |
|
Foreign exchange revaluation through reserves* |
1.5 |
0.4 |
1.9 |
|
At 30 June 2017 |
71.6 |
8.3 |
79.9 |
* 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 2016 and 2017 |
4.1 |
Goodwill
The Group's goodwill balance relates principally to the acquisition of the equities business in May 2011.
The Company's goodwill balance relates to the acquisition of the business from ANZ in 1999.
The annual impairment review of goodwill was undertaken for the year ending 30 June 2017. The Group consists of a single cash-generating unit for the purpose of assessing the carrying value of goodwill. In performing the impairment review, management prepares a calculation of
the recoverable amount of goodwill and compares this with the carrying value. The recoverable amount was based on a fair value less costs to
sell calculation using the Company's year end share price. Based on management's assessment as at 30 June 2017, the recoverable amount was in excess of the carrying value of goodwill and no impairment was implied. No impairment losses have been recognised in the current
or preceding years.
Fund management relationships
Intangible assets comprise fund management relationships related to profit expected to be earned from clients of AEIM.
An annual impairment review of the fund management relationships was undertaken for the year ending 30 June 2017. The recoverable amount was derived from the cumulative pre-tax net earnings anticipated to be generated over the remaining useful economic life, discounted to present value using the Group's weighted average cost of capital of 13.0% per annum. Cumulative net earnings associated with the fund management relationships intangible asset were derived from the annual operating profit contribution that would arise as a result of the remaining fund management relationships, adjusted for investment performance and investor attrition.
The recoverable amount of the fund management relationships intangible asset was determined to be higher than its carrying value as at 30 June 2017. Accordingly, no impairment charge was recognised during the year (FY2015/16: no impairment charge recognised).
The remaining amortisation period for fund management relationships is two years (30 June 2016: three years).
16) Property, plant and equipment
|
Group |
2017 |
2016 |
|
Cost |
|
|
|
At the beginning of the year |
7.8 |
6.6 |
|
Additions |
0.4 |
0.8 |
|
Foreign exchange revaluation |
0.1 |
0.6 |
|
Disposals |
(1.9) |
(0.2) |
|
At the end of the year |
6.4 |
7.8 |
|
|
|
|
|
Accumulated depreciation |
|
|
|
At the beginning of the year |
5.6 |
4.1 |
|
Depreciation charge for the year |
1.0 |
1.2 |
|
Foreign exchange revaluation |
- |
0.3 |
|
Disposals |
(1.8) |
- |
|
At the end of the year |
4.8 |
5.6 |
|
Net book value at 30 June |
1.6 |
2.2 |
|
Company |
2017 |
2016 |
|
Cost |
|
|
|
At the beginning of the year |
3.6 |
3.0 |
|
Additions |
0.1 |
0.7 |
|
Disposals |
- |
(0.1) |
|
At the end of the year |
3.7 |
3.6 |
|
|
|
|
|
Accumulated depreciation |
|
|
|
At the beginning of the year |
2.5 |
1.9 |
|
Depreciation charge for year |
0.5 |
0.6 |
|
Disposals |
- |
- |
|
At the end of the year |
3.0 |
2.5 |
|
Net book value at 30 June |
0.7 |
1.1 |
17) Trade and other receivables
|
|
Group |
Company |
||
|
|
2017 |
2016 |
2017 |
2016 |
|
Current |
|
|
|
|
|
Trade debtors |
67.2 |
56.8 |
3.6 |
3.5 |
|
Prepayments |
2.9 |
3.0 |
1.6 |
1.7 |
|
Loans due from subsidiaries |
- |
- |
354.1 |
277.5 |
|
Amounts due from subsidiaries |
- |
- |
38.1 |
2.2 |
|
Other receivables |
0.8 |
1.4 |
0.6 |
0.5 |
|
Total trade and other receivables |
70.9 |
61.2 |
398.0 |
285.4 |
Group trade debtors include all billed and unbilled management fees due to the Group at 30 June 2017 in respect of investment management services provided up to that date. Loans and amounts due from subsidiaries for the Company include intercompany loans related to seed capital investments held by subsidiaries and trading balances. Intercompany loans are issued on commercial terms and repayable on demand.
18) Deferred taxation
Deferred tax assets and liabilities recognised by the Group and Company at year end are attributable to the following:
|
|
2017 |
2016 |
||||
|
Group |
Other temporary differences |
Share-based payments |
Total |
Other temporary differences |
Share-based payments |
Total |
|
Deferred tax assets |
13.4 |
14.0 |
27.4 |
8.9 |
10.6 |
19.5 |
|
Deferred tax liabilities |
(9.2) |
- |
(9.2) |
(5.2) |
- |
(5.2) |
|
|
4.2 |
14.0 |
18.2 |
3.7 |
10.6 |
14.3 |
|
|
2017 |
2016 |
||||
|
Company |
Other temporary differences |
Share-based payments |
Total |
Other temporary differences |
Share-based payments |
Total |
|
Deferred tax assets |
0.2 |
11.3 |
11.5 |
0.1 |
8.1 |
8.2 |
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 2015 |
6.1 |
10.7 |
16.8 |
|
Credited/(charged) to the consolidated statement of comprehensive income |
(2.4) |
(0.1) |
(2.5) |
|
At 30 June 2016 |
3.7 |
10.6 |
14.3 |
|
Credited/(charged) to the consolidated statement of comprehensive income |
0.5 |
3.4 |
3.9 |
|
At 30 June 2017 |
4.2 |
14.0 |
18.2 |
|
Company |
Other temporary differences |
Share-based payments |
Total |
|
At 30 June 2015 |
0.3 |
8.7 |
9.0 |
|
Credited/(charged) to the statement of comprehensive income |
(0.2) |
(0.6) |
(0.8) |
|
At 30 June 2016 |
0.1 |
8.1 |
8.2 |
|
Credited/(charged) to the statement of comprehensive income |
0.1 |
3.2 |
3.3 |
|
At 30 June 2017 |
0.2 |
11.3 |
11.5 |
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 team 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 hierarchy that reflects the significance of inputs used in making the measurements:
- 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.
- Level 3: Valuation techniques use significant unobservable inputs.
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 each reporting period.
The fair value hierarchy of financial instruments which are carried at fair value at year end is summarised below:
|
|
2017 |
2016 |
||||||
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
|
Financial assets |
|
|
|
|
|
|
|
|
|
Investment securities |
60.8 |
85.5 |
84.9 |
231.2 |
27.2 |
69.6 |
46.9 |
143.7 |
|
Non-current financial assets held for sale |
- |
7.1 |
- |
7.1 |
- |
78.6 |
28.1 |
106.7 |
|
Available-for-sale financial assets |
- |
0.1 |
11.2 |
11.3 |
0.4 |
0.4 |
8.0 |
8.8 |
|
Fair value through profit or loss investments |
- |
36.0 |
- |
36.0 |
- |
68.2 |
- |
68.2 |
|
Non-current asset investments |
- |
4.5 |
18.0 |
22.5 |
- |
- |
11.7 |
11.7 |
|
Derivative financial instruments |
- |
0.3 |
- |
0.3 |
- |
- |
- |
- |
|
|
60.8 |
133.5 |
114.1 |
308.4 |
27.6 |
216.8 |
94.7 |
339.1 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
Third-party interests in consolidated funds |
30.9 |
42.4 |
35.6 |
108.9 |
11.0 |
36.2 |
28.4 |
75.6 |
|
Derivative financial instruments |
- |
- |
- |
- |
- |
4.5 |
- |
4.5 |
|
Non-current financial liabilities held for sale |
- |
- |
- |
- |
- |
29.8 |
- |
29.8 |
|
|
30.9 |
42.4 |
35.6 |
108.9 |
11.0 |
70.5 |
28.4 |
109.9 |
There were no transfers between Level 1, Level 2 and Level 3 during the year (FY2015/16: total of £19.5m non-current assets and available-for-sale financial assets were transferred from Level 2 to Level 3).
Changes in Level 3 financial assets and liabilities recognised at fair value on a recurring basis
|
|
Investment securities |
Non-current financial |
Available- |
Non-current asset investments |
Third-party interests in consolidated funds |
|
At 30 June 2015 |
47.5 |
- |
- |
- |
17.8 |
|
Additions |
22.0 |
- |
- |
1.1 |
10.0 |
|
Transfers in from Level 2 |
2.2 |
- |
7.9 |
9.4 |
- |
|
Reclassification from consolidated funds to HFS investments |
(26.0) |
26.0 |
- |
- |
- |
|
Unrealised gains recognised in finance income |
1.2 |
2.1 |
- |
1.2 |
0.6 |
|
Unrealised gains recognised in other comprehensive income |
- |
- |
0.1 |
- |
- |
|
At 30 June 2016 |
46.9 |
28.1 |
8.0 |
11.7 |
28.4 |
|
Additions |
- |
- |
- |
4.5 |
- |
|
Reclassification from HFS investments to consolidated funds |
28.1 |
(28.1) |
- |
- |
- |
|
Unrealised gains recognised in finance income |
9.9 |
- |
- |
1.8 |
7.2 |
|
Unrealised gains recognised in other comprehensive income |
- |
- |
3.2 |
- |
- |
|
At 30 June 2017 |
84.9 |
- |
11.2 |
18.0 |
35.6 |
Valuation of Level 3 financial assets and liabilities recognised at fair value on a recurring basis
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, reference to other instruments that are substantially the same, discounted cash flow analysis, and, if applicable, enterprise valuation.
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 do not typically reflect any premium or discount that could result from offering for sale at one time the Group's entire holdings of a particular financial instrument, nor do they typically consider the tax impact of the realisation of unrealised gains or losses from selling the financial instrument being fair valued. In some cases the disclosed value cannot be realised in immediate settlement of the financial instrument.
In accordance with the Group's Pricing Methodology and Valuation framework, the estimated fair values of derivative financial instruments valued internally using standard market practices are subject to assessment against external counterparties' valuations.
20) Seed capital investments
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 2017 and 2016.
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. The fund is then financed through the issue of units to 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 |
AFS investments |
FVTPL investments |
Investment securities (relating to consolidated funds)* |
Other |
Third-party interests in consolidated funds |
Non-current asset investments |
Total |
|
Carrying amount at 30 June 2015 |
20.7 |
10.6 |
61.8 |
131.0 |
15.5 |
(41.5) |
8.9 |
207.0 |
|
Reclassification: |
|
|
|
|
|
|
|
|
|
HFS to consolidated funds |
(15.8) |
- |
- |
20.7 |
- |
(4.9) |
- |
- |
|
FVTPL to HFS investments |
7.6 |
- |
(7.6) |
- |
- |
- |
- |
- |
|
Consolidated funds to HFS investments |
26.9 |
- |
- |
(26.9) |
- |
- |
- |
- |
|
Consolidated funds to FVTPL investments |
- |
- |
18.3 |
(47.3) |
- |
29.0 |
- |
- |
|
Net purchases, disposals and fair value changes |
37.5 |
(1.8) |
(4.3) |
66.2 |
(10.7) |
(58.2) |
2.8 |
31.5 |
|
Carrying amount at 30 June 2016 |
76.9 |
8.8 |
68.2 |
143.7 |
4.8 |
(75.6) |
11.7 |
238.5 |
|
Reclassification: |
|
|
|
|
|
|
|
|
|
HFS investments to consolidated funds |
(49.3) |
- |
- |
52.8 |
- |
(3.5) |
- |
- |
|
HFS investments to FVTPL |
(8.8) |
- |
8.8 |
- |
- |
- |
- |
- |
|
FVTPL to consolidated funds |
- |
- |
(23.2) |
60.3 |
- |
(37.1) |
- |
- |
|
Consolidated funds to FVTPL investments |
- |
- |
1.8 |
(6.0) |
- |
4.2 |
- |
- |
|
Net purchases, disposals and fair value changes |
(11.7) |
2.5 |
(19.6) |
(19.6) |
6.2 |
3.1 |
10.8 |
(28.3) |
|
Carrying amount at 30 June 2017 |
7.1 |
11.3 |
36.0 |
231.2 |
11.0 |
(108.9) |
22.5 |
210.2 |
* Investment securities in consolidated funds are designated as FVTPL.
** Relates to cash and other assets in consolidated funds that are not investment securities.
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, three funds (FY2015/16: five) 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 2017 were as follows:
|
|
2017 |
2016 |
|
Non-current financial assets held for sale |
7.1 |
106.7 |
|
Non-current financial liabilities held for sale |
- |
(29.8) |
|
Seed capital investments classified as held for sale |
7.1 |
76.9 |
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. One such fund was transferred to the FVTPL category during the year after the Group reduced its interests following investment inflows from third parties (FY2015/16: 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 (FY2015/16: seven) with an aggregate carrying amount of £12.5 million (FY2015/16: £15.8 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 net gains of £9.3 million (FY2015/16: net gains of £4.2 million) in relation to held for sale investments.
As the Group considers itself to have one segment (refer to note 4), no additional segmental disclosure of held for sale assets or liabilities is applicable.
b) Available-for-sale financial assets
Available-for-sale financial assets at 30 June 2017 comprise shares held in debt and equity funds as follows:
|
|
2017 |
2016 |
|
Equities listed on stock exchange |
- |
0.4 |
|
Equity funds |
11.3 |
8.4 |
|
Seed capital classified as available-for-sale |
11.3 |
8.8 |
Included within other comprehensive income are net gains of £2.5 million (FY2015/16: net gains of £1.1 million) in relation to available-for-sale investments.
c) Fair value through profit or loss investments
FVTPL investments at 30 June 2017 comprise shares held in debt and equity funds as follows:
|
|
2017 |
2016 |
|
Equity funds |
30.2 |
46.6 |
|
Debt funds |
5.8 |
21.6 |
|
Seed capital classified as FVTPL investments |
36.0 |
68.2 |
Included within finance income are net gains of £9.6 million (FY2015/16: net losses of £16.3 million) on the Group's FVTPL investments.
d) Consolidated funds
The Group has consolidated 13 investment funds as at 30 June 2017 (30 June 2016: 14 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.
|
|
2017 |
2016 |
|
Investment securities |
231.2 |
143.7 |
|
Cash and cash equivalents |
12.4 |
5.6 |
|
Other |
(1.4) |
(0.8) |
|
Third-party interests in consolidated funds |
(108.9) |
(75.6) |
|
Consolidated seed capital investments |
133.3 |
72.9 |
Investment securities are designated as FVTPL and include listed and unlisted equities and debt securities. 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 fund financially.
Included within the consolidated statement of comprehensive income are net gains of £12.8 million (FY2015/16: £nil) relating to the Group's share of the results of the individual statements of comprehensive income for each of the consolidated funds, as follows:
|
|
2017 |
2016 |
|
Finance income |
7.8 |
4.7 |
|
Gains/(losses) on investment securities |
22.4 |
(5.7) |
|
Change in third-party interests in consolidated funds |
(12.5) |
3.4 |
|
Other expenses |
(4.9) |
(2.4) |
|
Net gains/(losses) on consolidated funds |
12.8 |
- |
Included in the Group's cash generated from operations is £3.5 million cash utilised in operations (FY2015/16: £2.2 million cash utilised in operations) relating to consolidated funds.
As of 30 June 2017, the Group's consolidated funds were domiciled in Guernsey, Indonesia, Luxembourg, Saudi Arabia, and the United States.
e) Non-current asset investments
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.
|
|
2017 |
2016 |
|
Non-current asset investments |
22.5 |
11.7 |
Included within finance income are net gains of £2.5 million (FY2015/16: net losses of £0.4 million) on the Group's non-current asset investments.
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, available-for-sale, FVTPL or non-current asset investment 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.
Risk management is the ultimate responsibility of the Board, as noted in the Risk management section.
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 £448.3 million as at 30 June 2017 (30 June 2016: excess capital of £406.4 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 |
2017 |
2016 |
|
Investment securities |
19 |
231.2 |
143.7 |
|
Non-current financial assets held for sale |
19 |
7.1 |
106.7 |
|
Available-for-sale financial assets |
19 |
11.3 |
8.8 |
|
Fair value through profit or loss investments |
19 |
36.0 |
68.2 |
|
Derivative financial instruments |
19 |
0.3 |
- |
|
Trade and other receivables |
17 |
70.9 |
61.2 |
|
Cash and cash equivalents |
|
432.5 |
364.0 |
|
Total |
|
789.3 |
752.6 |
Investment securities, derivative financial instruments, non-current financial assets held for sale, available-for-sale financial assets and FVTPL investments 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 2017 (30 June 2016: A to AAA).
All trade and other receivables are considered to be fully recoverable and none were overdue at year end (30 June 2016: 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 2017
|
|
Within 1 year |
1-5 years |
More than |
Total |
|
Third-party interests in consolidated funds |
53.8 |
55.1 |
- |
108.9 |
|
Current trade and other payables |
64.2 |
- |
- |
64.2 |
|
|
118.0 |
55.1 |
- |
173.1 |
At 30 June 2016
|
|
Within 1 year |
1-5 years |
More than |
Total |
|
Non-current liabilities held for sale |
29.8 |
- |
- |
29.8 |
|
Third-party interests in consolidated funds |
32.1 |
43.5 |
- |
75.6 |
|
Derivative financial instruments |
4.5 |
- |
- |
4.5 |
|
Current trade and other payables |
55.4 |
- |
- |
55.4 |
|
|
121.8 |
43.5 |
- |
165.3 |
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 bank deposits 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
|
|
2017 |
2016 |
|
Deposits with banks and liquidity funds |
0.67 |
1.01 |
Deposits with banks and liquidity funds are repriced at intervals of less than one year.
At 30 June 2017, 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 £2.0 million higher/lower (FY2015/16: £1.0 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 1.0% exchange movement in the US dollar, Colombian peso and Indonesian rupiah, net of hedging activities.
|
|
2017 |
2016 |
||
|
Foreign currency sensitivity test |
Impact on profit |
Impact on equity |
Impact on profit |
Impact on equity |
|
US dollar +/- 1% |
1.8 |
2.6 |
2.6 |
2.7 |
|
Euro +/- 1% |
0.1 |
0.1 |
0.1 |
0.1 |
|
Indonesian rupiah +/- 1% |
0.1 |
0.1 |
0.4 |
0.3 |
|
Colombian peso +/- 1% |
0.1 |
0.1 |
0.1 |
0.1 |
Price risk
Price risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of market changes.
Seed capital
The Group is exposed to the risk of changes in market prices in respect of seed capital investments. Such price risk is borne by the Group directly through interests in available-for-sale and non-current asset seed capital investments 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 2017, a 5% movement in the fair value of these investments would have had a £10.5 million (FY2015/16: £11.9 million) impact
on net assets and the impact on profit before tax would have been £3.3 million (FY2015/16: £7.8 million).
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, throughout Ashmore's history, 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$58.7 billion and applying the year's average net management fee rate of 52bps, a 5% movement
in AuM would have a US$15.3 million impact, equivalent to £11.8 million using year end exchange rate of 1.2946, on management fee revenues (FY2015/16: using the year end AuM level of US$52.6 billion and applying the year's average net management fee rate of 55bps, a 5% movement in AuM would have a US$14.5 million impact, equivalent to £10.9 million using year end exchange rate of 1.3234 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 2017, protect a proportion of the Group's revenue cash flows from foreign exchange movements.
The cumulative fair value of the outstanding foreign exchange hedges asset at 30 June 2017 was £0.3 million (30 June 2016: £4.5 million foreign exchange hedges liability) and is included within the Group's derivative financial instrument assets.
The notional and fair values of foreign exchange hedging instruments were as follows:
|
|
2017 |
2016 |
||
|
|
Notional amount |
Fair value assets/ |
Notional amount |
Fair value assets/ |
|
Cash flow hedges |
|
|
|
|
|
Foreign exchange nil-cost option collars |
60.0 |
0.3 |
85.0 |
(4.5) |
|
|
60.0 |
0.3 |
85.0 |
(4.5) |
The maturity profile of the Group's outstanding hedges is shown below.
|
Notional amount of option collars maturing: |
2017 |
2016 |
|
Within 6 months |
30.0 |
40.0 |
|
6-12 months |
30.0 |
30.0 |
|
>12 months |
- |
15.0 |
|
|
60.0 |
85.0 |
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.
A £3.8 million intrinsic gain (FY2015/16: £3.9 million intrinsic loss) on the Group's hedges has been recognised through other comprehensive
income and £3.7 million intrinsic value loss (FY2015/16: £1.7 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 loss of £2.8 million (note 7) recognised at 30 June 2017 (£1.1 million gain at 30 June 2016) are:
- a £0.9 million gain in respect of foreign exchange hedges covering net management fee income for the financial year ending 30 June 2017 (FY2015/16: £0.6 million loss in respect of foreign exchange hedges covering net management fee income for the financial year ended 30 June 2016); and
- a £3.7 million loss in respect of crystallised foreign exchange contracts (FY2015/16: £1.7 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:
|
|
|
2017 |
2016 |
|
Cash and cash equivalents |
|
229.7 |
301.4 |
|
Trade and other receivables |
|
398.0 |
285.4 |
|
Total |
|
627.7 |
586.8 |
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 2017 (30 June 2016: A to AAA).
All trade and other receivables are considered to be fully recoverable and none were overdue at year end (30 June 2016: 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
|
|
2017 |
2016 |
|
Deposits with banks and liquidity funds |
0.30 |
0.59 |
Deposits with banks and liquidity funds are repriced at intervals of less than one year.
At 30 June 2017, 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 £1.1 million higher/lower (FY2015/16: £0.5 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 2017, 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 £3.9 million (FY2015/16: increased/decreased by £3.4 million).
22) Share capital
Authorised share capital
|
Group and Company |
2017 |
2017 |
2016 |
2016 |
|
Ordinary shares of 0.01p each |
900,000,000 |
90 |
900,000,000 |
90 |
Issued share capital - allotted and fully paid
|
Group and Company |
2017 |
2017 |
2016 |
2016 |
|
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 2017, there were equity-settled share awards issued under the Omnibus Plan totalling 38,579,871 (30 June 2016: 39,805,764) shares that have release dates ranging from July 2017 to December 2021. Further details are provided in note 10.
23) Own shares
The Ashmore 2004 Employee Benefit Trust (EBT) acts as an agent to acquire and hold shares in Ashmore Group plc with a view to facilitating the recruitment and motivation of employees. As at the year end, the EBT owned 38,701,321 (30 June 2016: 41,173,968) ordinary shares of 0.01p with a nominal value of £3,870 (30 June 2016: £4,117) and shareholders' funds are reduced by £115.4 million (30 June 2016: £122.3 million) in this respect. It is the intention of the Directors to make these shares available to employees through the share-based compensation plans. The EBT is periodically funded by the Company for these purposes.
24) Treasury shares
Treasury shares held by the Company
|
|
2017 |
2016 |
||
|
Group and Company |
Number |
£m |
Number |
£m |
|
Ashmore Group plc ordinary shares |
5,368,331 |
6.9 |
5,368,331 |
6.9 |
Reconciliation of treasury shares
|
|
2017 |
2016 |
|
At the beginning and end of the year |
5,368,331 |
5,368,331 |
The market value of treasury shares was £19.0 million at the year end (30 June 2016: £16.0 million).
25) Trade and other payables
|
|
Group |
Group |
Company |
Company |
|
Current |
|
|
|
|
|
Trade and other payables |
29.5 |
19.9 |
26.7 |
39.9 |
|
Accruals and deferred income |
34.7 |
35.5 |
1.9 |
2.5 |
|
Amounts due to subsidiaries |
- |
- |
40.0 |
7.7 |
|
Total trade and other payables |
64.2 |
55.4 |
68.6 |
50.1 |
26) Interests in subsidiaries
Operating subsidiaries
Movements in investments in subsidiaries during the year were as follows:
|
Company |
2017 |
2016 |
|
Cost |
|
|
|
At 30 June 2016 |
20.0 |
20.1 |
|
Disposals |
(0.1) |
(0.1) |
|
At 30 June 2017 |
19.9 |
20.0 |
During December 2016, Ashmore disposed of its entire interest in Ashmore Portfoy Yonetimi Anonim Sirketi for a cash consideration of £0.4 million resulting in a loss on disposal of £0.2 million. At the time of sale, associated seed capital positions were redeemed, crystallising gains in the period of £0.3 million which have been presented within finance income.
In the opinion of the Directors, the following subsidiary undertakings principally affected the Group's results or financial position at 30 June 2017. A full list of the Group's subsidiaries and all related undertakings is disclosed in note 33.
|
Name |
Country of incorporation/ formation and principal place of operation |
% of equity shares held by the Group |
|
Ashmore Investments (UK) Limited |
England |
100.00 |
|
Ashmore Investment Management Limited |
England |
100.00 |
|
Ashmore Investment Advisors Limited |
England |
100.00 |
|
Ashmore Management Company Colombia SAS |
Colombia |
61.00 |
|
Ashmore CAF-AM Management Company SAS |
Colombia |
53.66 |
|
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 Equities Holding Corporation |
USA |
100.00 |
|
Ashmore Equities Investment Management (US) LLC |
USA |
100.00 |
Consolidated funds
The Group consolidated the following investment funds as at 30 June 2017 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 |
39.06 |
|
Ashmore Emerging Markets Distressed Debt Fund |
Corporate debt |
Guernsey |
40.02 |
|
Ashmore Emerging Markets Debt and Currency Fund Limited |
Blended debt |
Guernsey |
100.00 |
|
Ashmore Dana USD Nusantara |
External debt |
Indonesia |
65.49 |
|
Ashmore SICAV Absolute Return Debt Fund |
Blended debt |
Luxembourg |
70.48 |
|
Ashmore SICAV 2 Global Bond Fund |
Local currency |
Luxembourg |
100.00 |
|
Ashmore SICAV Multi Asset Fund |
Multi-asset |
Luxembourg |
37.73 |
|
Ashmore Saudi Equity Fund |
Equity |
Saudi Arabia |
50.38 |
|
Ashmore Saudi GCC Equity Fund |
Equity |
Saudi Arabia |
72.67 |
|
Ashmore Emerging Markets Value Fund |
Equity |
USA |
62.07 |
|
Ashmore Emerging Markets Equity Opportunities Fund |
Equity |
USA |
96.75 |
|
Ashmore Emerging Markets Active Equity Fund |
Equity |
USA |
84.60 |
|
Ashmore Emerging Markets Hard Currency Debt Fund |
External debt |
USA |
84.83 |
27) Interests in associates and joint ventures
The Group held interests in the following associates as at 30 June 2017 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% |
|
Taiping Fund Management Company** |
Associate |
Investment management |
China |
15% |
* Everbright Ashmore includes four related entities.
** Formerly Ashmore-CCSC Fund Management Company Limited, renamed Taiping Fund Management Company.
During August 2016, Ashmore reduced its interest in the joint venture Ashmore-CCSC Fund Management Company Limited (ACCSC), from 49% to 15% following the introduction of a new shareholder, Taiping Group. Ashmore received cash consideration of £4.8 million resulting in a profit of £1.8 million in the period. ACCSC was renamed Taiping Fund Management Company Limited after the transaction and Ashmore Group's remaining 15% equity interest in the company was reclassified to investment in associate.
Movements in investments in associates and joint ventures during the year were as follows:
|
|
2017 |
2016 |
|
||||
|
|
Associates |
Joint ventures |
Total |
Associates |
Joint ventures |
Total |
|
|
At the beginning of the year |
1.6 |
4.7 |
6.3 |
1.4 |
5.9 |
7.3 |
|
|
Additions/(disposals) |
0.1 |
(3.0) |
(2.9) |
- |
- |
- |
|
|
Share of profit/(loss) |
- |
(0.8) |
(0.8) |
- |
(1.7) |
(1.7) |
|
|
Distributions |
(0.4) |
- |
(0.4) |
- |
- |
- |
|
|
Reclassification from joint venture to associate |
0.9 |
(0.9) |
- |
- |
- |
- |
|
|
Foreign exchange revaluation |
0.1 |
- |
0.1 |
0.2 |
0.5 |
0.7 |
|
|
At the end of the year |
2.3 |
- |
2.3 |
1.6 |
4.7 |
6.3 |
|
The summarised aggregate financial information on associates is shown below.
|
Group |
2017 |
2016 |
|
Total assets |
3.3 |
3.9 |
|
Total liabilities |
(0.3) |
(0.3) |
|
Net assets |
3.0 |
3.6 |
|
Group's share of net assets |
0.9 |
1.1 |
|
Revenue for the year |
8.9 |
0.5 |
|
Profit/(loss) for the year |
(4.5) |
- |
|
Group's share of profit/(loss) for the year |
(0.8) |
- |
The carrying value of the investments in associates includes attributable goodwill that arose on acquisition of the associates. Although the Group's share of net assets of the associates is currently below the aggregate carrying value of the associates reflected on the consolidated balance sheet, the Group has considered that this position is temporary. No permanent impairment is believed to exist relating to the associates.
The Group has undrawn capital commitments of £4.9 million (30 June 2016: £4.8 million) to investment funds managed by the associates. Further details are provided in note 28.
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 2017 |
58.7 |
0.3 |
58.4 |
|
30 June 2016 |
52.6 |
0.2 |
52.4 |
Included in the Group's consolidated management fees of £226.2 million (FY2015/16: £197.1 million) are management fees amounting
to £225.4 million (FY2015/16: £195.4 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.
|
|
2017 |
2016 |
|
Management fees receivable |
35.0 |
29.7 |
|
Trade and other receivables |
30.0 |
24.8 |
|
Seed capital investments |
76.9 |
165.6 |
|
Total exposure |
141.9 |
220.1 |
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:
|
|
2017 |
2016 |
|
AA Development Capital India Fund 1 LLC |
1.2 |
1.2 |
|
Ashmore Andean Fund II, LP |
1.8 |
- |
|
Ashmore Emerging Markets Corporate Private Debt Fund |
0.3 |
1.0 |
|
Ashmore I - CAF Colombian Infrastructure Senior Debt Fund |
15.0 |
15.2 |
|
Ashmore I - FCP Colombia Infrastructure Fund |
0.1 |
0.8 |
|
Ashmore Special Opportunities Fund LP |
1.6 |
3.2 |
|
Everbright Ashmore China Real Estate Fund |
1.4 |
1.4 |
|
KCH Healthcare LLC |
4.5 |
5.2 |
|
VTBC-Ashmore Real Estate Partners I, LP |
3.5 |
3.4 |
|
Total undrawn investment commitments |
29.4 |
31.4 |
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 for employee services is shown below:
|
|
2017 |
2016 |
|
Short-term employee benefits |
1.4 |
0.9 |
|
Defined contribution pension costs |
- |
- |
|
Share-based payment benefits |
4.8 |
2.2 |
|
|
6.2 |
3.1 |
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 (FY2015/16: none). Aggregate key management personnel interests in consolidated funds at 30 June 2017 were £42.4 million (30 June 2016: £28.5 million).
Transactions with subsidiaries - Company
Details of transactions between the Company and its subsidiaries are shown below:
|
|
2017 |
2016 |
|
Transactions during the year |
|
|
|
Management fees |
110.3 |
73.7 |
|
Net dividends |
99.2 |
89.6 |
|
Loans advanced to/(repaid by) subsidiaries |
76.6 |
(16.6) |
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 £111.6 million of gross management fees and performance fees (FY2015/16: £89.4 million) from the
86 funds (FY2015/16: 91 funds) it manages and which are classified as related parties. As at 30 June 2017, the Group had receivables due
from funds of £5.1 million (30 June 2016: £1.5 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 2017, the loan outstanding was £103.5 million (30 June 2016: £112.6 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 (FY2015/16: £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
|
|
2017 |
2016 |
|
Within 1 year |
3.0 |
3.2 |
|
Between 1 and 5 years |
7.3 |
9.9 |
|
Later than 5 years |
3.3 |
4.4 |
|
|
13.6 |
17.5 |
Company
|
|
2017 |
2016 |
|
Within 1 year |
1.2 |
1.2 |
|
Between 1 and 5 years |
4.6 |
4.6 |
|
Later than 5 years |
1.8 |
2.9 |
|
|
7.6 |
8.7 |
Operating lease expenses are disclosed in note 11.
Company
The Company has undrawn loan commitments to other Group entities totalling £77.5 million (30 June 2016: £124.5 million) to support their investment activities but has no investment commitments of its own (30 June 2016: none).
31) Post-balance sheet events
There are no post-balance sheet events that require adjustment or disclosure in the consolidated financial statements.
32) Accounting estimates and judgements
Estimates and judgements used in preparing the financial statements are regularly evaluated and are based upon management's assessment
of current and future events. The principal estimates and judgements that have a significant effect on the carrying amounts of assets and liabilities are discussed below.
Share-based payment transactions
The Group measures the cost of equity-settled and cash-settled share-based awards at fair value at the date of grant and expenses them over the vesting period based on the Group's estimate of the shares that will vest. Market-related performance conditions are incorporated into the grant price of the awards. The estimation of the likelihood of the performance conditions being met is made at the
time of granting the awards for equity-settled arrangements and also at each reporting date for cash-settled share-based arrangements.
32) Accounting estimates and judgements
Classification of seed capital investments
The Group invests seed capital from time to time to support the initial launch and growth of new products, such as SICAVs, private equity
funds and alternative investment funds. The seed capital investments vary in duration depending on the nature of the product and the time expected to grow the funds to a size and track record required for participation by third-party investors. The Group reviews the size and nature of these investments to consider the level of control over the fund and to determine the appropriate classification for accounting either as
full consolidation (where the Group concludes that it has control over the fund), using equity-method accounting (where the Group exercises significant influence or joint control), or as a financial asset classified as available-for-sale, held for sale or at fair value through profit or loss.
In the case of seed capital investments, where the Group concludes that it does not have control over the fund, the Group is also not deemed to have significant influence over the fund, and therefore does not apply equity-method accounting. The Group would account for the seed capital investment as a financial asset, classified either as an available-for-sale financial asset, financial asset held for sale, or a financial asset
at fair value through profit or loss. The Group considers that its seeding activity is intended to help establish a fund's track record and to
provide initial scale until the fund has attracted sufficient third-party capital, at which stage the Group will actively seek to redeem and
redeploy the seed capital.
Management exercises judgement to determine whether the Group controls an investment fund under IFRS 10, including making an assessment of whether the Group has power over the fund which the Group exercises primarily for self-benefit. Management also assesses the magnitude of the Group's aggregate economic interest in the fund (comprising direct interests, carried interests, expected management fees, fair value gains or losses, and distributions receivable from funds managed) relative to third-party investors, and whether third-party investors have substantive rights to remove the Group from acting as a fund manager without cause.
The Group has assessed and classified the following fund vehicles 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. Further details on the carrying values of these seed capital financial assets have been disclosed in note 20.
The disclosure of the AuM in respect of consolidated and unconsolidated structured entities is provided in note 28.
Impairment of intangible assets
The Group tests goodwill and intangible assets annually for impairment. The recoverable amount for goodwill is determined in reference to
the Group's market capitalisation, whereas the recoverable amount for intangible assets is determined based upon value in use calculations prepared on the basis of management's assumptions and estimates. The carrying value of goodwill and intangible assets on the Group's balance sheet at 30 June 2017 was £79.9 million (30 June 2016: £82.5 million). Management considers that reasonably possible changes in any of the key assumptions applied would not cause the carrying value of fund management relationships intangible asset to materially exceed its recoverable value. The recoverable amount of the intangible asset was determined to be higher than its carrying value as at 30 June 2017. Accordingly, no impairment charge was recognised during the year (see note 15).
33) Subsidiaries and related undertakings
The following is a full list of the Ashmore Group plc subsidiaries and related undertakings as at 30 June 2017 pursuant to the requirements of Statutory Instrument 2015 No. 80 The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015. The list includes the Group's subsidiaries and related undertakings, all significant holdings (greater than 20% interest), 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 Investment Management (US) Corporation |
Subsidiary |
100.00 |
475 Fifth Avenue, 15th Floor New York, 10017 USA |
||
|
Ashmore Equities Holding Corporation |
Subsidiary |
100.00 |
|||
|
Ashmore Equities Investment Management (US) LLC |
Subsidiary |
100.00 |
|||
|
Ashmore Investment Management (Singapore) Pte. Ltd. |
Subsidiary |
100.00 |
1 George Street #15-04, Singapore 049145 |
||
|
PT Ashmore Asset Management Indonesia |
Subsidiary |
66.67 |
18 Parc SCBD Tower E, 8th Floor Jl. Jend. Sudirman Kav.52-53 Jakarta 12190, Indonesia |
||
|
Ashmore Dana USD Nusantara |
Consolidated fund |
65.49 |
|||
|
Ashmore Dana USD Equity Nusantara |
Significant holding |
30.38 |
|||
|
Ashmore Management Company Colombia SAS |
Subsidiary |
61.00 |
Carrera 7 No. 75 -66, Office 702 Bogotá, Colombia |
||
|
Ashmore-CAF-AM Management Company SAS |
Subsidiary |
53.66 |
|||
|
Ashmore Japan Co. Limited |
Subsidiary |
100.00 |
11F, Shin Marunouchi Building 1-5-1 Marunouchi Chiyoda-ku Tokyo Japan 100-6511 |
||
|
Ashmore Investments (Colombia) SL |
Subsidiary |
100.00 |
c/ Hermosilla 11, 4ºA 28001 Madrid, Spain |
||
|
Ashmore Management (DIFC ) Limited |
Subsidiary |
100.00 |
Office 105 , Gate Village 03, Level 1 Dubai International Financial Centre Dubai, UAE |
||
|
AA Indian Development Capital Advisors Private Limited (in liquidation) |
Subsidiary |
100.00 |
507A Kakad Chambers Dr Annie Besant Road Worli Mumbai 400 018 India |
||
|
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 (in liquidation) |
Subsidiary |
51.00 |
|||
|
Ashmore Investment Saudi Arabia |
Subsidiary |
90.00 |
3rd Floor Tower B Olaya Towers Olaya Main Street Riyadh, Saudi Arabia |
||
|
Ashmore Saudi Equity Fund |
Consolidated fund |
50.38 |
|||
|
Ashmore Saudi GCC Equity Fund |
Consolidated fund |
72.67 |
|||
|
AA Development Capital Investment Managers (Mauritius) LLC |
Subsidiary |
55.00 |
Les Cascades Building 33 Edith Cavell Street, Port Louis Mauritius |
||
|
Ashmore Investments (Holdings) Limited |
Subsidiary |
100.00 |
|||
|
Ashmore Emerging Markets Special Situation Opportunities Fund (GP) Limited |
Subsidiary |
100.00 |
Trafalgar Court Les Banques St Peter Port GY1 3QL Guernsey
|
||
|
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 |
39.06 |
|||
|
Ashmore Emerging Markets Distressed Debt Fund |
Consolidated fund |
40.02 |
|||
|
Ashmore Emerging Markets Debt and Currency Fund Limited |
Consolidated fund |
100.00 |
|||
|
Ashmore SICAV Absolute Return Debt Fund |
Consolidated fund |
70.48 |
6 rue Lou Hemmer L - 1748 Senningerberg Grand-Duchy of Luxembourg |
||
|
Ashmore SICAV 2 Global Bond Fund |
Consolidated fund |
100.00 |
|||
|
Ashmore SICAV Multi Asset Fund |
Consolidated fund |
37.73 |
|||
|
Ashmore SICAV Active Equity Fund |
Significant holding |
35.14 |
|
||
|
Ashmore SICAV Investment Grade Total Return Fund |
Significant holding |
100.00 |
|
||
|
Ashmore Emerging Markets Value Fund |
Consolidated fund |
62.07 |
475 Fifth Avenue, 15th Floor New York, 10017 USA |
||
|
Ashmore Emerging Markets Equity Opportunities Fund |
Consolidated fund |
96.75 |
|||
|
Ashmore Emerging Markets Active Equity Fund |
Consolidated fund |
84.60 |
|||
|
Ashmore Emerging Markets Hard Currency Debt Fund |
Consolidated fund |
84.83 |
|
||
|
Ashmore Investment Consulting (Beijing) Co. Limited (in liquidation) |
Subsidiary |
100.00 |
Room 3401, Tower 1, China World Trade Center Office, No.1 Jian Wai Da Jie, Chaoyang District Beijing, China |
||
|
Ashmore Emlak ve Yatirim Ltd Sirketi (in liquidation) |
Subsidiary |
100.00 |
Cömert Sk. Yapı Kredi Plaza C Blok Kat:11 34330 Levent-Istanbul, Turkey |
||
|
Ashmore Investments (Turkey) NV (in liquidation) |
Subsidiary |
100.00 |
Prins Bernhardplein 200, 1097JB Amsterdam Netherlands |
||
|
Everbright Ashmore China Real Estate Fund |
Significant holding |
22.78 |
89 Nexus Way Camana Bay Grand Cayman KY1-9007 Cayman Islands |
||
|
Everbright Ashmore Services and Consulting Limited |
Associate |
30.00 |
c/o Appleby Trust (Cayman) Ltd., Clifton House, 75 Fort Street PO Box 1350, Grand Cayman, KY-1108 Cayman Islands |
||
|
EA Team Investment Partners Limited |
Associate |
30.00 |
|||
|
Everbright Ashmore Real Estate Partners Limited |
Associate |
30.00 |
190 Elgin Avenue, George Town, Grand Cayman KY1-9007, Cayman Islands |
||
|
Everbright Ashmore Investment Management Limited |
Associate |
30.00 |
|||
|
Taiping Fund Management Company Limited |
Associate |
15.00 |
Unit 101, Building No.5, 135 Handan Road, Shanghai, China |
||
|
VTB-Ashmore Capital Holdings Limited |
Associate |
50.00 |
Trafalgar Court Les Banques St Peter Port GY1 3QL Guernsey |
||
|
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 ended 30 June 2017 or 30 June 2016. Statutory accounts for 2016 have been delivered to the registrar of companies, and those for 2017 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 2016 or 2017.
This information is provided by RNS
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