Preliminary Results

RNS Number : 2369F

Polar Capital Holdings PLC

13 June 2012

 



POLAR CAPITAL HOLDINGS plc

Preliminary Group Audited Results for the year ended 31 March 2012

13 June 2012

Financial highlights

·     Net inflows every quarter, despite turbulent markets and Assets under Management ("AUM") at 31 March 2012 up 31% at US$5.08bn (2011: US$3.87bn)

·     Core operating profit excluding performance fees up 97% to £7.1m (2011:£3.6m)

·     Profit before share based payments and amortisation of intangibles of £11.3m (2011:£10.2m)

·     Pre-tax profit of £9.6m (2011:£9.2m)

·     Basic earnings per share up 10% to 9.48p (2011:8.64p); diluted earnings per share of 8.13p (2011:8.22p) and adjusted* diluted earnings per share up 6% to 10.06p (2011:9.5p)

·     Dividends for the year up 20% to 9.0 p per share (2011:7.5p)

·     Shareholders' funds £46.6m (2011: £43.3m) including cash and investments of £49.0m (2011: £48.6m)

* Adjusted to exclude cost of share-based payments and intangible asset amortisation/impairment

Corporate Highlights

·     7 out of 8 long only Funds in 1st quartile

·     Performance fees earned for 11th successive year

·     New North American Fund was launched in November 2011, raising over $75m and subsequently grown to $137m by year end

·     European Market Neutral and Global Equity franchises established with hiring of new teams

·     Distribution capabilities strengthened with further hires and third party distribution agreements signed in Germany and Australia

Tim Woolley, Chief Executive, commented:

"The Group has continued to make good progress in the face of challenging market conditions and encouragingly we saw net inflows of over $1bn during the year.  Investment performance has been strong with seven out of eight long only Funds in the top quartile for the year and four out of our six hedge Funds ending the year in positive territory.  We also continue to deliver on our strategy of diversifying our offering with the addition of three new teams and strategies, bringing us up to eleven teams in total, and expanding our distribution capability further.

Assuming market conditions do not deteriorate further, we are well positioned for further significant growth in the year ahead."

Dividend

The Board has declared a second interim dividend of 7.5p per ordinary share to be paid on 6 August 2012 to shareholders on the register on 13 July 2012. The shares will trade ex-dividend from 11 July 2012.

For further information please contact:

Polar Capital                                                  [phone] Tim Woolley (CEO) John Mansell (CFO)  Canaccord Genuity - Nomad and Broker    [phone] Simon Bridges Cameron Duncan F T I Consulting                                              [phone] Ed Gascoigne-Pees Jack Hickey

About Polar Capital

Polar Capital Holdings plc is a specialist investment management company offering professional and institutional investors a range of geographical and sector Funds. The Company's investment strategies have a fundamental research driven approach. The Company has long-only and absolute return Funds in its product range.

Founded in 2001, Polar Capital currently has 84 employees of whom 42 are investment professionals managing 18 Funds and 5 managed accounts.

The Company is AIM quoted following its Initial Public Offering in February 2007. Consistent with the Company's founding strategy of fostering an equity culture amongst its employees and providing high levels of transparency to clients, 45% of the equity is currently held by Directors, founders and employees.

AUM by funds/strategy	31 March 2012 $m	31 March 2011 $m
Technology Trust plc	837	762
Global Technology UCITS Fund	644	640
Technology	1,481	1,402
Japan UCITS Fund*	1,517	1,063
Japan
UK Hedge Fund*	9	12
UK Absolute Return UCITS Fund*	35	144
UK Managed accounts	238	14
UK	282	170
European Forager Hedge Fund	499	479
European Conviction Hedge Fund	119	97
Europe	618	576
Global Healthcare Growth & Income Trust plc	180	151
Healthcare Opportunities UCITS Fund	167	82
Healthcare	347	233
Asian Financials UCITS Fund	57	70
European Financial UCITS Fund (merged into Financial Opportunities Fund)	-	30
Global Insurance UCITS Fund	352	129
Financials Income UCITS Fund	73	67
Financial Opportunities UCITS Fund A	15	-
Financials	497	296
Emerging Markets Growth UCITS Fund*	107	83
Emerging Markets Income UCITS Fund	42	13
Emerging Markets	149	96
ALVA Global Convertible Hedge Fund	39	39
North American UCITS Fund B	137	-
European Market Neutral Hedge Fund	11	-
European Market Neutral UCITS Fund	5	-
European Market Neutral Fund C	16	-
Total	5,083	3,875

* Including managed accounts run off the same strategy

^A Financial Opportunities Fund was launched in May 2011

^B North American Fund was launched in November 2011

^C European Market Neutral Fund was launched in March 2012

Analysis of changes in asset types for the 12 months to 31 March 2012

AUM movement 12 months to 31 March 2012	Long	Hedge	Total
Total assets as at 31 March 2011	$3,104m	$771m	$3,875m
Performance and currency movements	$150m	$14m	$164m
Net subscriptions / (redemptions)	$1,111m	$(67)m	$1,044m
Total assets as at 31 March 2011	$4,365m	$718m	$5,083m

CHAIRMAN'S STATEMENT

When I wrote to you last year I expressed a degree of caution on the outlook for markets but remained confident in our ability to grow the business further in the year ahead.  While markets once again proved challenging I am very pleased to report a further increase in our AUM to $5.1bn at 31 March 2012, 31% higher than the previous year end and the level reported in our interim results at the end of September. The growth in assets was largely due to continued strong inflows across a number of our products with the markets providing little in the way of help this year.

Results

Pre-tax profits before share based payments and intangible asset amortisation/impairment increased from £10.2m to £11.3m with core pre-tax profit increasing from £3.6m to £7.1m. Net performance fees of £4.1m were down on last year's figure of £5.7m although this marks our eleventh successive year of generating such fees.

Our balance sheet remains strong with gross cash and investments of £49.0m.

Market Background

It was another turbulent year in the markets with the seemingly never ending European debt crisis once again dominating events. Markets plunged over the summer months as renewed worries surfaced over Greece. After numerous European 'crisis summits' a debt reduction package was agreed in return for commitments by the Greek government to a package of austerity measures designed to reign in their profligate government spending. Worries though had also spread to some of the other Eurozone member states including Spain, Portugal and Italy.

In an attempt to allay market fears European governments committed to reducing their budget deficits in the years ahead and the European Central Bank (ECB) also stepped in to give support to the region's banks. These measures together restored a measure of calm and markets rallied strongly over the winter months. Despite all the summer drama, markets finished little changed from where they had been at the start of our financial year with the MSCI World Index down 1.7% over the period and the FTSE All Share down 2.1%.

Whilst Europe dominated much of the headlines over the year elsewhere in the world the economic news was somewhat better and provided a helpful offset to the woes of many of the European economies. In the US the recovery picked up some steam whilst the emerging markets continued to post decent economic growth and although there are concerns over a slowdown in Chinese growth, the absolute level of growth remains impressive and a positive impact on global growth.

Overall though it was a difficult environment for our clients and understandably many were reluctant to invest into equity products with so much economic and political uncertainty. We were therefore pleased to achieve over $1billion of net inflows over the financial year and to achieve net inflows during every quarter.

Funds and Performance

Flows were seen across a number of our long only Funds but particularly strong inflows were seen into our Japan and Global Insurance Funds. Net flows were also achieved over the year in Global Technology, Global Healthcare and our Emerging Markets Funds.

Undoubtedly the continued strong performance of a good number of our Funds was a key factor in our continued success in attracting new inflows to our products. The performance on our long only Funds is summarised in the table below:

Fund (UCITS)	Peer Group Ranking	Quartile Ranking
Japan	30/362	1
Healthcare Opportunities	14/111	1
Emerging Markets Growth	61/523	1
Emerging Markets Income	19/523	1
Asian Financials	18/93	1
Financials Income	15/93	1
Global Insurance	4/93	1
Global Technology	43/53	4

Source: Lipper

It is pleasing to see that seven out of our eight long only Funds were first quartile over the year and in keeping with our aim to deliver superior performing products to our clients.

On the alternative side performance was also encouraging in a year when many hedge Funds posted losses. Four of our six Funds were in positive territory during the calendar year with the Conviction Fund posting a particularly impressive gain of +6.5% in the Euro share class.

The only disappointment was on the UK Funds which finished in negative territory for the year and this led to further outflows from these products.

At the annual EuroHedge Awards three of our Funds were nominated in their respective categories this year. The Forager Fund continued with its impressive sequence of nominations but it was pleasing to see the Conviction Fund nominated for the first time and the ALVA Global Convertibles Fund also did well receiving a nomination after its first year.

Developments

We continued to add to our investment expertise during the financial year with the addition of two experienced teams. On the long only side we added a North American team and on the alternative side we added a European Market Neutral team. After the close of the financial year we hired a long only Global Equity team. I would like to warmly welcome all the new teams and wish their Funds success.

Dividend

The Board believes that the level of dividend should reflect the Company's trading results, its cash resources and also its future prospects. In light of results to 31 March 2012 and the continued confidence in the future of the business, the Board has declared a second interim dividend of 7.5p (2011: 6.0p) to be paid in August 2012. Together with the interim dividend of 1.5p paid in January 2012 the total dividend for the year amounts to 9.0p.

Outlook

It is difficult to envisage anything other than another turbulent year ahead. With the exception of Germany most of the other major European economies are seeing weakness which is only serving to make the debt crisis worse. Indeed as I write to you the crisis looks to be entering a new dangerous phase with weakening political consensus on the path ahead and doubt over whether the current European institutional framework actually has the capability to respond to the challenges at hand.

Despite this difficult backcloth in Europe and provided there are no significant falls in markets, I believe the Company remains well positioned to continue to weather the challenges of the external environment and make further good progress over the coming year.

We have a differentiated product offering with good performance supported by a robust operational infrastructure and a high level of client service. This combination together with our strong financial position is resonating well with a growing number of clients both in the UK and overseas. As long as we continue to deliver the levels of performance we have historically achieved I believe we have the opportunity for substantial further growth in the years to come.

The Board

We said farewell to Sarah Street in September 2011 when she stood down as a Director.  Sarah had been a Director since 2006 and played an active role in the Company's development.  On behalf of the Board I pass on our thanks and best wishes.

We welcomed Mr George Bumeder to the Board in September 2011.  Mr Bumeder continues the Company's close links with XL Group and he brings extensive knowledge of the alternative funds industry.

Annual General Meeting

The Annual General Meeting will again be held at Cayzer House, 30 Buckingham Gate, London SW1E 6NN at 2.00pm on Monday 23 July 2012 and I would encourage shareholders to attend to meet the Directors.  Full details of the meeting and the resolutions are set out in the separate notice of meeting.

Tom Bartlam

Chairman

CHIEF EXECUTIVE'S STATEMENT

We continue to execute on the strategy that I set out when I took over as Chief Executive Officer in November 2009, pursuing growth through focusing on three areas:

-      Increase the assets in our existing products

-      Increase the range of products offered by existing teams

-      Acquire and recruit additional investment talent

As you have seen from the Chairman's statement we continue to make substantial progress with the first part of our strategy. Strong investment performance remains paramount but we are also benefiting from the investments we have made over the last few years in distribution and in client service.

We once again expanded our distribution capability by adding further to our personnel and our direct efforts have been augmented by two third party distribution agreements - one for the German market which we signed in January 2011 and has already delivered early results and the second for the Australian market, signed in June 2011, which we expect to start contributing during the new financial year.

Post year end we have taken the important step of appointing a director of North America who will be based in our Connecticut office. Previously we had developed our activities in North America from London. However, we now feel the time is right to have someone 'on the ground' there and so accelerate our penetration of this important market given our expanded product offering on both the alternative and long only side.

In keeping with the second leg of our growth strategy we continue to look at possibilities for expanding our product offering from our existing teams. In the last financial year we launched one product in this respect - the Financial Opportunities Fund in May. We view this as an exciting development and a Fund with a significant opportunity once the financial sector returns to favour. The product is global in scope fully utilising the expertise of our award winning financials team. It replaces the more narrowly focused European Financial Fund which despite its excellent performance record had limited commercial potential.

Pursuing the third part of our strategy we added the North American long only team and on the alternative side the European Market Neutral team during the fiscal year. In June of the current fiscal year we have recruited our eleventh team, the long only Global Equity team.

The North American team of Andrew Holliman and Richard Wilson joined us in August. The team are highly regarded having worked together for many years and built up a strong record of outperforming their benchmark and peers. They joined us from a major competitor where they were managing over $7bn of North American long only assets. We launched the Polar Capital North American Fund in November and raised over $75m during the launch period which was an excellent start. The Fund has continued to attract assets and by the end of our fiscal year was already up to $137m.

In October we completed the acquisition of the Ratio European Market Neutral Fund bringing with it the manager Ton Tjia who was one of the pioneers of European long/short investing. In February we launched a UCITS version of the Fund. We also decided to merge the UK Hedge Fund into the European Market Neutral Fund as the UK Fund's assets had fallen below $10m.

Andy MacKirdy and Christophe Williams joined us in June 2012 to form our new Global Equity team. They will work with Andy Holliman who as well as managing North American money established a reputation for global equities at his previous employer. The three previously worked together at the outset of their investment careers and are now united again to form a strong and experienced team.

The Global Equity Fund will be launched over the coming months and will be targeted at the institutional market where large sums are allocated to this strategy. Although this will take a number of years to develop into a significant contributor to the business, it is a potentially important strategic move into a different client market with strong  growth potential over the medium term.

Our original vision when we started Polar Capital was to have ten to twelve investment teams. We still hold with that original vision wishing to have a degree of diversification for the business but without trying to be 'all things to all people'. With eleven teams in place we have therefore almost realised our original vision in terms of team numbers and our energies will increasingly focus on fully exploiting the opportunities we have put in place.

A number of our strategies have quite definite capacity limits if we are to maintain the excellent  level of performance standards we expect. The highly successful Forager Fund has been closed to new investors for a number of years now and despite client demand we have remained and will continue to remain disciplined in our approach to capping Funds.

Whilst a number of strategies do have a finite capacity, a number of our more recent additions have very large potential capacity and given the underlying liquidity of the strategy it is difficult to envisage a level at which such strategies would need to be capped in order not to compromise performance. In particular our North American product has a capacity of several billion dollars and our Global Equity product will have even greater capacity than that.

Other Funds where there is substantial additional capacity would include the Global Emerging Markets Growth Fund, the Global Emerging Markets Income Fund, the Financial Opportunities Fund, the Financials Income Fund, the Healthcare Opportunities Fund, the Conviction Fund, the ALVA Global Convertibles Fund and the two European Market Neutral Funds. We therefore have no shortage of opportunities to increase our total AUM over the coming years even though we have almost reached our target for investment teams.

I would like to close by thanking our clients for their continued interest in our products and the support and encouragement that many provide for the path we are on. I would like to thank our shareholders for their continued support and enthusiasm. Finally, I would like to thank all our staff for their hard work, skill, professionalism and commitment which has enabled us to make such good progress over recent years and which gives me confidence for the future both over the coming year and beyond.

Tim Woolley

Chief Executive

FINANCIAL REVIEW

Profit and Loss account

The Group made a profit (pre tax, pre share-based payments and pre intangible asset amortisation/impairment) for the year of £11.3m (2011: £10.2m). The table below summarises the break down of the source of the profits:

	Year to 31 March 2012	Year to 31 March 2011
Core operating profit	£7.1m	£3.6m
Performance fee profit	£4.1m	£5.7m
Interest and similar income	£0.1m	£0.9m
Profit before tax and before share-based payments	£11.3m	£10.2m
Share-based payments	£(0.6)m	£(0.5)m
Amortisation of intangible assets	£(1.1)m	£(0.5)m
Profit before tax	£9.6m	£9.2m

The rise in core operating profitability by £3.5m to £7.1m was simply a product of the increase in Assets Under Management ("AUM"). The Group's AUM at the start of the year was $3.87bn compared to $2.53bn at March the previous year and the simple average AUM over the year was $4.47bn compared to $3.20bn the year before. The year saw net core revenues rise by £6.2m and core costs rise by only £2.7m.

The rise in total core operating costs from £18.5m to £21.2m is explained by a number of factors that are tabulated below. Total operating costs of £26.4m (2011: £27.5m) include interests of £5.2m (2011: £9.0m) payable to staff from the Group's gross performance fee receipts.

	Year to 31 March 2012	Year to 31 March 2011
Salaries and bonuses	£11.0m	£8.9m
Core distributions	£3.3m	£3.5m
Core compensation costs	£14.3m	£12.4m
Other operating costs	£6.9m	£6.1m
Total core operating costs	£21.2m	£18.5m
Performance fee costs	£5.2m	£9.0m
Total Operating costs	£26.4m	£27.5m

Share-based payments

The consolidated income statement includes a line titled "share-based payments" which accounts for a charge of £0.6m (2011: £0.5m). The figures can be broken down as follows:

Analysis of the cost of share-based payments:

	Year to 31 March 2012	Year to 31 March 2011
IFRS cost attributed to preference shares	-	-
IFRS cost attributed to conventional options	£0.6m	£0.5m
Total cost of share-based payments	£0.6m	£0.5m

The effect that the charge for share-based payments and the charge for amortisation of intangible assets (see below) has on the EPS figures of the Group are as follows:

	Year to 31 March 2012	Year to 31 March 2011
Diluted earnings per share	8.1p	8.2p
Impact of share-based payments	0.7p	0.6p
Impact of intangible asset amortisation	1.2p	0.7p
Adjusted diluted earnings per share	10.0p	9.5p

Preference shares

A separate class of preference shares is issued by Polar Capital Partners Limited to each of the leading fund managers on their arrival into the Group. These shares provide each manager with an economic interest in the Funds that they run and ultimately enable the manager to convert their interest in the revenues generated from their Funds into equity in Polar Capital Holdings plc. The equity is awarded in return for the forfeiture of their economic interest and vests over three years with the full quantum of the dilution being reflected in the diluted share count (and so diluted EPS) from the point of conversion. The event has been designed to be, at both the actual and the diluted levels, earnings enhancing to shareholders.

In the year to 31 March 2012 one set of preference shares converted into Polar equity (nil in 2011). The product of the event was that a total of 8.2m shares are to be issued of which 3.3m have been issued as at 31 March 2012. The remaining 4.9m shares will be issued in two equal tranches of 2.45m shares on 31 March 2013 and 31 March 2014. Simultaneous to the commitment to issue these new shares in Polar Capital Holdings PLC the recipient of the shares forfeited a fixed economic interest in the business unit.

As at 31 March 2012 one further set of preference shares has the ability to call for a conversion. The call has to be made on or before 30 November 2012 if the conversion is to take place from 31 March 2012.

Amortisation of intangible assets

On 21 September 2010, the Group acquired 100% of the voting shares of HIM Capital Holdings Limited ("HIM"), a specialist fund manager with an established track record of managing financial Funds and with approximately $245m of assets under management, thereby establishing a strong financials sector franchise for the Group. The product of the acquisition was that intangible assets of £1.7m representing the acquired investment management contracts were taken onto the Group's balance sheet (i.e. the consideration above the value of tangible assets purchased). These intangible assets and the associated deferred tax liability / goodwill of £0.4m is being amortised / impaired over a period of two years. This resulted in a charge of £1.1m in this year's accounts (2011: £0.5m) leaving a value of £0.5m intangible assets in the year end balance sheet. 

Balance Sheet and cash

At the year end the cash balances of the Group had increased by £3.4m to £22.6m (2011: 19.2m). The increase was a product of the £9.0m of cash generated from the Group's operating activities (2011: £12.7m), the payment of £5.5m of dividends and £3.1m of tax, and the receipt of £2.9m of cash from investments being realised.

At the balance sheet date the Group held £26.4m of investments in its Funds (2011: 29.4m).

At the year end, the sum of available-for-sale assets plus cash was £49.0m (2011: £48.6m).

Business Risk

There is a range of risks and uncertainties faced by the Group which is more fully described in the Directors' Report. Amongst the major risks to the business strategy is the loss of assets under management due to markets falling, poor investment performance or the loss of key investment personnel. These events will not only have an immediate impact on the management fees earned by the Group but also deprive the Group of possible performance fees.

Going Concern

The Financial Reporting Council has determined that all companies should carry out a rigorous assessment of all the factors affecting the business in deciding to adopt a going concern basis for the preparation of the accounts.

The Directors have reviewed and examined the financial and other processes embedded in the business, in particular the annual budget process and the financial stress testing inherent in the Internal Capital Adequacy Assessment Process ("ICAAP"). On the basis of such review and the significant liquid assets underpinning the balance sheet the Directors consider that the adoption of a going concern basis, covering a period of at least 12 months from the date of this report, is appropriate.

John Mansell

Finance Director

Consolidated Income Statement
for the year ended 31 March 2012
	Audited
	Year to	Year to
	31 March 2012	31 March 2011
	£'000	£'000
Revenue	39,940	39,066
Finance income	72	873
Gross income	40,012	39,939
Commissions and fees payable	(2,228)	(2,242)
Net income	37,784	37,697
Operating costs before share-based payments	(26,494)	(27,530)
Operating profit before share-based payments, amortisation/impairment and tax	11,290	10,167
Share-based payments	(594)	(452)
Amortisation/impairment of intangible assets	(1,080)	(540)
Profit for the year before tax	9,616	9,175
Taxation	(2,568)	(2,841)
Profit for the year attributable to ordinary shareholders	7,048	6,334
Basic earnings per ordinary share	9.48p	8.64p
Diluted earnings per ordinary share	8.13p	8.22p
Adjusted earnings per ordinary share (Non GAAP measure)	10.06p	9.50p
All of the items in the above statements are derived from continuing operations.

Consolidated Statement of Comprehensive Income
for the year ended 31 March 2012
	Audited
	Year to	Year to
	31 March 2012	31 March 2011
	£'000	£'000
Profit for the year attributable to ordinary shareholders	7,048	6,334
Other comprehensive income
Net loss on the revaluation of available-for-sale financial assets	(124)	(239)
Deferred tax effect	34	71
	(90)	(168)
Net movement on cash flow hedges	(22)	473
Current tax effect	72	-
Deferred tax effect	(78)	7
	(28)	480
Total comprehensive income for the year, net of tax, attributable to ordinary shareholders	6,930	6,646

Consolidated  Balance Sheet
as at 31 March 2012
	Audited
	31 March 2012	31 March 2011
	£'000	£'000
Non-current assets
Property, plant and equipment	71	53
Intangible assets	540	1,620
Available-for-sale financial assets	26,426	29,418
Deferred tax assets	1,711	640
Total non-current assets	28,748	31,731
Current assets
Trade and other receivables	5,107	3,555
Cash and cash equivalents	22,583	19,194
Other financial assets	158	225
Total current assets	27,848	22,974
Total assets	56,596	54,705
Non-current liabilities
Deferred tax liabilities	206	391
Current liabilities
Trade and other payables	8,493	9,265
Current tax liabilities	1,299	1,697
Total current liabilities	9,792	10,962
Total liabilities	9,998	11,353
Net assets	46,598	43,352
Capital and reserves
Issued share capital	1,983	1,895
Share premium	16,010	15,905
Investment in own shares	(1,107)	(1,167)
Capital and other reserves	2,135	1,243
Retained earnings	27,577	25,476
Total equity - attributable to ordinary shareholders	46,598	43,352

The financial statements were approved and authorised by the Board of Directors on 12 June 2012.

Hugh Aldous

Chairman of the Audit Committee

John Mansell

Finance Director

Consolidated statement of changes in equity
for the year ended 31 March 2012
	Share	Share	Own	Capital	Other	Retained	Total
	capital	premium	shares	reserves	reserves	earnings	equity
	£ ' 000	£ ' 000	£ ' 000	£ ' 000	£ ' 000	£ ' 000	£ ' 000
As at 1 April 2010	1,877	15,268	(1,392)	363	222	19,795	36,133
Profit for the year	-	-	-	-	-	6,334	6,334
Other comprehensive income	-	-	-	-	312	-	312
Total comprehensive income	-	-	-	-	312	6,334	6,646
Dividends	-	-	-	-	-	(1,105)	(1,105)
Issue of shares	-	-	225	-	-	-	225
Issue of share capital	18	637	-	-	-	-	655
Share-based payment	-	-	-	-	-	452	452
Deferred tax in respect of employee share options	-	-	-	-	346	-	346
As at 1 April 2011	1,895	15,905	(1,167)	363	880	25,476	43,352
Profit for the year	-	-	-	-	-	7,048	7,048
Other comprehensive income	-	-	-	-	(118)	-	(118)
Total comprehensive income	-	-	-	-	(118)	7,048	6,930
Dividends	-	-	-	-	-	(5,541)	(5,541)
Issue of shares	6	105	60	-	-	-	171
Issue of share capital against preference shares	82	-	-	(82)	-	-	-
Share-based payment	-	-	-	-	-	594	594
Current tax in respect of employee share options	-	-	-	-	129	-	129
Deferred tax in respect of employee share options	-	-	-	-	963	-	963
As at 31 March 2012	1,983	16,010	(1,107)	281	1,845	27,577	46,598

Consolidated  Cash Flow Statement
for the year ended 31 March 2011
	Audited
	Year to 31 March 2012	Year to 31March 2011
	£'000	£'000
Cash flows generated from operating activities
Cash generated from operations	8,985	12,704
Tax paid	(3,083)	(2,369)
Net cash inflow generated from operating activities	5,902	10,335
Investing activities
Interest received and similar income	12	32
Purchase of property, plant and equipment	(49)	(44)
Proceeds from sale of available-for-sale financial assets	24,745	33,168
Purchase of available-for-sale financial assets	(21,851)	(42,291)
Acquisition of a subsidiary	-	(1,487)
Net cash outflow used in investing activities	2,857	(10,622)
Financing activities
Equity dividends paid	(5,541)	(1,105)
Issue of share capital	111	655
Receipts/(payments) in relation to investment in own shares	60	225
Net cash (outflow) from financing activities	(5,370)	(225)
Net (decrease) in cash and cash equivalents	3,389	(512)
Cash and cash equivalents at start of the year	19,194	19,706
Cash and cash equivalents at end of year	22,583	19,194

SELECTED NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2011

1. Accounting policies

General

Polar Capital Holdings plc (the 'Company') is a public limited company registered in England and Wales whose shares are traded on the Alternative Investment Market (AIM) of the London Stock Exchange.

The principal accounting policies applied in the preparation of these consolidated financial reports are set out below.

Basis of preparation           

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, except for available-for-sale financial assets, assets at fair value through profit or loss and derivative financial instruments that have been measured at fair value.

Business combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value. Acquisition costs incurred are expensed.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with contractual terms and economic circumstances as at the acquisition date.

Goodwill is initially measured at cost being the excess of the consideration transferred over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment on an annual basis and any impairment losses are charged to the income statement.

Intangible assets

The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and any accumulated impairment losses.

Intangible assets are amortised over the useful economic life of the assets, which continues to be estimated at two years, and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation expense on intangible assets is recognised in the income statement.

2. Operating segments                      

The Group is a specialist investment management group offering professional and institutional investors a range of geographical and sector investment opportunities. The Group's assets under management are separated into products and services but as the strategic and financial management decisions are determined centrally, by the Chief Executive, the Group only has one class of business, being the provision of investment management and advisory services.

The Group's revenue generating operations are in London, with small offices in Tokyo, Jersey and Connecticut that do not generate any revenue.

Geographical analysis of income (based on the residency of source)
	Year to 31 March 2012	Year to 31 March 2011
UK	£'000	£'000
	9,145	6,345
Ireland	19,103	16,120
Cayman	10,221	14,147
USA	-	293
Europe	1,332	2,389
Profit/(loss) on forward currency contracts	139	(228)
	39,940	39,066
Analysis of income by type of fees	Year to 31 March 2012	Year to 31 March 2011
Investment management fees	£'000	£'000
	30,284	24,389
Investment advisory fees	200	116
Investment performance fees	9,317	14,789
Profit/(loss) on forward currency contracts	139	(228)
	39,940	39,066

3. Business combinations

Acquisition of HIM Capital Holdings Limited

On 21 September 2010, the Group acquired 100% of the voting shares of HIM Capital Holdings Limited ("HIM"), a specialist fund manager with an established track record of managing financial funds and with approximately US$245 million of assets under management, thereby establishing a strong financials sector franchise for the Group.

The acquisition has been accounted for using the acquisition method. The Group consolidated financial statements include the results of HIM for the period from acquisition date. The fair values of the identifiable assets and liabilities of HIM as at the date of acquisition were:

Assets	Fair value at date of acquisition £'000	Fair value £'000
Cash	513	513
Receivables	117	117
	630	630
Liabilities
Payables	(344)	(344)
Deferred tax on intangible assets	-	(446)
Tangible net assets acquired	286	(160)
Intangible assets acquired	1,714	1,714
Goodwill	-	446
Purchase consideration	2,000	2,000

Analysis of cash flows on acquisition:	£'000
Net cash acquired with the subsidiary ( included in cash flows from investing activities)	513
Cash paid	(2,000)
Net cash outflow	(1,487)

The vendors committed to reinvest £655,000 of the £2m consideration into the share capital of the Group as indicated by the investing activities section of the cash flow statement and the statement of changes in equity.

The goodwill of £446,000 relates to deferred tax liabilities recognised on intangible assets acquired as part of the HIM acquisition.

4. Earnings per ordinary share

The calculation of basic earnings per ordinary share is based on the profit for the year of £7,047,837 (2011: £6,333,786) and on 74,379,559 (2011: 73,326,706) ordinary shares, being the weighted number of ordinary shares.

The calculation of diluted earnings per ordinary share is based on the profit of the year of £7,047,837 (2011: £6,333,786) and 86,653,207 (2011: 77,082,044) ordinary shares, being the weighted average number of ordinary shares allowing for all options of 7,335,892 (2011: 3,755,338) which are dilutive.

The calculation of adjusted earnings per ordinary share is based on profit for the year of £7,047,837 but adjusted for the cost of share-based payments of £593,800, amortisation of intangibles of £857,000 and impairment of goodwill of £222,820 (2011: profit of £6,333,786 adjusted for the cost of share-based payments of £452,428, amortisation of intangibles of £428,500 and impairment of goodwill of £111,410) and 86,653,207 (2010: 77,082,044) ordinary shares being the weighted average number of ordinary shares allowing for all dilutive options.

As at 31 March 2012, the fully diluted number of ordinary shares which would be in issue is 89,645,244 shares, if all outstanding options were exercised.

5. Intangible assets             

The Group's intangible assets comprise investment management contracts that have been identified as separately identifiable intangible assets arising on the acquisition of HIM Capital Holdings Limited, as well as goodwill attributable to the recording of deferred tax liabilities under IAS 12 against the initial recognition, on acquisition date, of the investment management contracts at fair value.

The investment management contracts are being amortised over a period of approximately two years from the date of acquisition. Goodwill is allocated fully to the investment management contracts acquired and is reviewed for impairment on an annual basis. For the year ended 31 March 2011 an impairment has arisen as a consequence of the amortisation of the investment management contracts and the release of the corresponding deferred tax liability.

Cost	Goodwill £'000	Investment management contracts £'000	Total £'000
As at 1 April 2010	-	-	-
Additions/acquisitions (Note 23)	446	1,714	2,160
As at 31 March 2011	446	1,714	2,160
Additions/acquisitions (Note 23)	-	-	-
As at 31 March 2012	446	1,714	2,160

Amortisation and impairment

As at 1 April 2010	-	-	-
Impairment/amortisation charge	111	429	540
As at 31 March 2011	111	429	540
Impairment/amortisation charge	223	857	1,080
As at 31 March 2012	334	1,286	1,620

Net book value

At 31 March 2011	335	1,285	1,620
At 31 March 2012	112	428	540

Status of preliminary announcement

The Board of Directors approved this preliminary announcement on 12 June 2012. Whilst the financial information included in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") as endorsed by the European Union, this announcement does not itself contain sufficient information to comply with all the disclosure requirements of IFRS and does not constitute statutory accounts of the Group for the years ended 31 March 2012 or 31 March 2011.

The financial information has been extracted from the statutory accounts of the Company for the years ended 31 March 2012 and 31 March 2011. The auditors reported on those accounts; their reports were unqualified and did not contain a statement under either Section 498 (2) or Section 498 (3) of the Companies Act 2006 and did not include references to any matters to which the auditor drew attention by way of emphasis.

The statutory accounts for the year ended 31 March 2011 have been delivered to the Registrar of Companies, whereas those for the year ended 31 March 2012 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

Copies of Report and Accounts

The full annual report and accounts will be posted to shareholders in June 2012 and copies will be available thereafter from the Company Secretary at the Company's Registered Office, 4 Matthew Parker Street, London SW1H 9NP (020 7227 2700) or from the Company's website at www.polarcapital.co.uk

Annual General Meeting

The Annual General Meeting will be held at 2.00pm on 23 July 2012 at Cayzer House, 30 Buckingham Gate, London SW1E 6NN

Forward looking statements

This preliminary announcement contains certain forward looking statements with respect to the financial condition, results of operations and businesses and plans for Polar Capital Holdings plc.  These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that have not yet occurred.  There are a number of different factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements.  Nothing in this statement should be construed as a profit forecast.

The release, publication, transmission or distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published, transmitted or distributed should inform themselves about and observe such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities laws of any such jurisdiction.

 

END

 

 

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