Ashmore Regulatory News (ASHM)

Ashmore Group plc

6 September 2023 

Results for the year ended 30 June 2023 

Ashmore Group plc (Ashmore, the Group), the specialist Emerging Markets asset manager, today announces its audited results for the year ended 30 June 2023. 

- Financial performance reflects early point in recovery cycle 

- Assets under management (AuM) of US$55.9 billion1

- Positive performance of US$3.4 billion as Ashmore outperformed strong market returns

- Net outflow of $11.5 billion as a result of institutional de-risking, primarily by developed world investors 

- Momentum building, higher performance and improved net flows in H2 

- Adjusted net revenue of £195.4 million, 24% lower YoY and reflecting opening AuM 23% below prior year average AuM level 

- Adjusted operating costs reduced by 4% YoY. Variable remuneration reduced by 24% YoY, representing 25% of EBVCIT 

- Adjusted EBITDA of £106.2 million, 35% lower YoY, and adjusted EBITDA margin of 54% 

- Profit before tax of £111.8 million, 6% lower YoY, benefiting from lower, unrealised mark-to-market seed capital losses and higher interest on cash balances 

- Diluted EPS of 12.2 pence, 4% lower than in the prior year

- Consistent strong and liquid balance sheet with over £700 million of capital resources including c.£470 million of cash 

- Final ordinary dividend maintained at 12.1 pence per share, to give total dividends per share of 16.9 pence 

- Active management delivering outperformance in a stronger year for Emerging Markets 

- Index returns of +2% to +11% over the 12 months 

- Improving relative performance: 67% of AuM outperforming benchmarks over one year; 69% over three years; and 49% over five years (30 June 2022: 45%, 28% and 48%, respectively) 

- Consistent strategy implementation with meaningful AuM growth available in each phase 

- Phase 1 offers upside from higher allocations, particularly following a period of market volatility 

- Phase 2 ongoing, diversification through equities, alternatives capital raising and cyclical upside from intermediary retail flows 

- Phase 3 successfully delivering diversification benefits, and local markets network can expand over time. AuM from Emerging Markets clients increased by US$1.1 billion from 27% to 33% of Group AuM 

- Clear opportunity for further recovery in Emerging Markets asset prices 

- Consistent structural themes support long-term Emerging Markets growth, assets currently undervalued 

- Emerging Markets have controlled inflation and central banks are cutting rates; GDP growth is significantly higher than in the developed world; China stimulus to counter weak consumer confidence 

- Valuations remain highly attractive

Commenting on the Group's results, Mark Coombs, Chief Executive Officer, Ashmore Group said: 

"Ashmore has delivered meaningful investment outperformance for clients this year and momentum is building as the recovery in Emerging Markets continues. While the Group's financial performance naturally lags this pick-up in markets and relative performance, as has been experienced after previous down cycles, the consistent strategy underpins Ashmore's medium-term growth potential and the business model is designed to mitigate the impact of market volatility.

"There is mounting evidence that the negative cycle has turned and, while the recovery may not be a straight line, it is well-supported by improving fundamentals across the larger emerging countries. Some investors remain cautious, but client activity levels are increasing and the combination of positive performance and attractive valuations available across Emerging Markets should drive capital flows over the medium term.

"Ashmore remains highly profitable, is delivering outperformance for clients and has a scalable operating platform, which means it is well-positioned to benefit from the ongoing recovery in Emerging Markets."

1. As reported on 14 July 2023. 

Analysts briefing 

There will be a presentation for sell-side analysts at 9.30am on 6 September 2023 at UBS, 5 Broadgate, London, EC2M 2QS. A copy of the presentation will be made available on the Group's website at ir.ashmoregroup.com. 

Contacts 

For further information please contact: 

Ashmore Group plc 

Tom Shippey, Group Finance Director +44 (0)20 3077 6191Paul Measday, Investor Relations +44 (0)20 3077 6278

FTI Consulting 

Neil Doyle +44 (0)7771 978 220Kit Dunford +44 (0)7717 417 038

CEO review

Consistent strategy implementation

With the experience of more than 30 years of specialist investing, Ashmore's strategy is to capitalise on the long-term opportunitiesin Emerging Markets, and its established business model responds to the shorter-term impact of market volatility. Ashmore is delivering outperformance for clients and is well-positioned for an ongoing recovery in markets.

The past year provided encouraging evidence that the cyclical recovery has begun across Emerging Markets, with higher asset prices, an improving growth outlook, falling inflation and the benefits of a weaker US dollar. There remains, however, a degree of caution among some investors, particularly those in the US, given macroeconomic concerns such as policy tightening by developed world central banks and conflict or geopolitical tension in Europe and Asia. Additionally, the largest Emerging Market, China, needs to navigate the headwinds of lower consumer confidence and demand following the reopening of its economy.

Against this backdrop, Ashmore has delivered meaningful outperformance for clients and has continued to execute its long-term growth strategy, and its business model remains appropriate to manage the impact of market volatility. As has been experienced in previous cycles, after a period of challenging market conditions the Group's financial performance naturally lags the turn in markets and the delivery of investment outperformance. The Group started this financial year with AuM of US$64 billion, which was more than 20% below the level of average AuM in the prior financial year and therefore represented a notable revenue headwind for the current year. There was encouraging momentum over the year with client activity levels, net flows and investment performance higher in H2 compared with H1. Overall, lower average AuM resulted in a 35% YoY decline in adjusted EBITDA, but as a result of lower losses on the Group's seed capital investments and higher interest earned on cash balances, profit before tax was 6% lower and diluted EPS fell by 4%. Consequently, the Board has recommended an unchanged final ordinary dividend.

Undiminished long-term growth and investment opportunities in Emerging Markets

Irrespective of events in the short term, the longer-term potential of Emerging Markets remains undiminished. Superior economic growth is expected to continue as a result of powerful convergence trends with the developed world. These trends are supported by ongoing reforms, particularly the shift by larger countries to local currency funding and high-quality policymaking that delivers better economic management and greater resilience to external shocks. The resulting investment opportunities for a specialist, active manager are diversified across an investment universe spanning more than 70 emerging countries and with approximately US$75 trillion of fixed income securities and equity market capitalisation.

Appropriate strategy to deliver long-term growth

The Group's three-phase strategy is to capture these opportunities while seeking to protect the Group from some of the more significant challenges facing active asset managers such as the threat of passive competition. Inevitably, given the cyclical nature of markets, progress made in each of the three phases will vary.

Risk aversion by some investors resulted in an adjustment to allocations to Emerging Markets in the year, yet this was more pronounced among developed world investors than those based in Emerging Markets. Ashmore's AuM from the latter increased over the year by US$1.1 billion and from 27% to 33% of total AuM.

While interest rates have increased in both developed and emerging countries, there is additional yield available in Emerging Markets that helps to compensate for higher risk, whether perceived or actual, and the merits of equity allocations are underpinned by the superior growth prospects of emerging economies. Therefore, as the market recovery continues, a broader range of investors is expected to recognise and act upon the attractive investment opportunities available in Emerging Markets fixed income and equities.

Ashmore's objective is to diversify its business and revenue streams over time, and the current focus is on converting the strong equities investment performance into client flows, with encouraging activity levels picking up through the period; increasing alternatives AuM; and delivering growth in intermediary retail assets as risk appetite increases.

The AuM opportunity within each initiative is substantial, with the potential to deliver a significantly larger and more diversified business, thereby enhancing further the Group's resilience to market cycles.

Ashmore has established a network of local asset management operations across six emerging countries, from Colombia in the west to Indonesia in the east. Collectively, they manage US$7 billion for domestic and international institutions and intermediary retail investors. Importantly, they provide the Group with diversification benefits, as seen tangibly this year with stable locally managed AuM compared with a decline for the Group's global business, and access to significant long-term growth opportunities as each country develops its capital markets and asset management industry.

Each business continues to develop according to its local strategy, with listed equities outperformance, investment realisations and further capital raising planned in Colombia; development of a broader product range and client diversification in Saudi Arabia; good investment performance and growing AuM in India; and investment outperformance and successful management of industry regulatory changes in Indonesia.

The success of Ashmore Indonesia illustrates the near-term development opportunity in these businesses, and the potential value creation for Ashmore's shareholders. With the Group's support, the management team established a highly profitable business of more than US$2 billion AuM, with significant employee equity ownership and a listing on the local Jakarta Stock Exchange. The business is currently valued at more than US$150 million.

Consequently, Ashmore has significant organic growth potential available in each of these countries and will pursue opportunities to expand the network over time.

Established business model to manage impact of market volatility

Ashmore has experienced many different market environments in more than 30 years of specialist investing in Emerging Markets and, while every cycle is different, its business model is designed to mitigate the impact of fluctuating AuM levels on its operational and financial performance.

The Board took the decision to increase the proportion of profits paid to employees in variable remuneration from 22.5% to 25.0% of EBVCIT. While in absolute terms the bonus pool is 24% lower, the higher percentage reflects the cumulative impact of three years of mostly challenging market conditions and consequently a significant reduction in AuM and pre-bonus profits. The Board remains mindful of achieving an appropriate balance between overall employee remuneration and the profits available to shareholders, and has recommended an unchanged final ordinary dividend this year.

Delivering strong investment performance

As described in the Market review, Emerging Markets benchmark indices delivered good returns for the year. In fixed income, Ashmore's value-based investment process delivered outperformance through active management and adding positions at attractive market levels over the past few years. Similarly, the main equities strategies have navigated the market volatility of recent years and delivered consistent outperformance, with a strong track record over one, three and five years. Overall, 69% of the Group's AuM is outperforming benchmarks over three years, a significant increase compared with 28% a year ago.

Ashmore has a well-established pattern of exploiting cyclical market weakness through active management embedding significant upside value in portfolios, and the subsequent market recovery leading to outperformance for clients. While the drivers of each cycle are different, Ashmore's consistent approach has again delivered a similar profile of investment performance in this cycle.

Employees

In recent years, Ashmore's employees have experienced significant changes in working practices, high levels of market volatility and a period of cyclically lower AuM and profits. Delivering performance for clients is the responsibility of all colleagues, not just the investment professionals, and therefore on behalf of the Board, I would like to thank each of them for their steadfast commitment to Ashmore's purpose, their expertise and high levels of professionalism, and maintaining the Group's highly effective team-based culture.

Positive outlook as the market cycle turns

There is mounting evidence that the negative cycle has turned and, while the recovery may not be a straight line, it is well-supported by improving fundamentals across the larger emerging countries, although notably China faces some headwinds from lower consumer confidence after reopening its economy. Some investors remain cautious, but client activity levels are increasing and the combination of positive performance and attractive valuations available across Emerging Markets should drive capital flows over the medium term, as has occurred after previous down cycles.

Ashmore is focused on pursuing its strategic growth objectives, while managing the business appropriately to mitigate the impact of market conditions and competitive pressures, and to deliver upside through operating leverage as AuM grows as a consequence of performance and client flows.

Ashmore remains highly profitable, is delivering outperformance for clients and has a scalable operating platform, which means it is well-positioned to benefit from the ongoing recovery in Emerging Markets.

Mark Coombs

Chief Executive Officer

5 September 2023

MARKET REVIEW

A stronger year in Emerging Markets

Conditions in Emerging Markets improved over the year, leading to fixed income returns of 6% to 11% and outperformance versus developed markets, and equities delivered a positive return of 2%. Near-term returns are underpinned by attractive valuations and further improvement in cyclical factors against a backdrop of structural growth.

After a weak first quarter in common with global capital markets, Emerging Markets rallied over the subsequent nine months to deliver positive returns for the year overall. This reflects the benefit of sound and effective monetary policies, lower debt levels than developed countries, tighter sovereign and corporate spreads over the period, and the positive impact of a weaker US dollar on local currency returns.

The year was characterised by the continued tightening of policy rates by central banks in response to high inflation, banking failures in the US and Europe, and ongoing conflict or geopolitical tension in Europe and Asia. Several important economic indicators underpinned the rally in Emerging Markets asset prices:

- GDP growth across Emerging Markets is expected to be significantly higher than in the developed world.

- After more than two years of tighter monetary policy, inflation is falling in Emerging Markets and interest rates are now higher than expected CPI inflation. The inflection point in the rates cycle has been reached, the credibility of most central banks is high, and monetary policy easing by Emerging Markets central banks is possible in the foreseeable future.

- The US dollar has enjoyed a prolonged bull run, which appears to have ended in 2022 as the weak underlying fundamentals in the US economy, and the prospect of a recession and correction in the equity market, put downward pressure on the currency.

The sections below present the recent performance and prospects for each of the main fixed income and equity asset classes.

External debt

The EMBI GD delivered a positive return of 7.4% over the 12 months, and the index spread over US Treasuries tightened by 110bps to 430bps. Although the first quarter saw a material drawdown (-4.6%) due to high inflation and hawkish central banks, the index delivered positive returns in each subsequent quarter. By region, Eastern Europe, Africa and Latin America performed well, while Asia and the Middle East lagged the index.

The HY index spread briefly exceeded 1,000bps early in the period, which historically is a level from which substantial positive returns are achieved over the following 12 months. Indeed, HY assets outperformed over the 12 months with a return of 11.8% compared with 3.4% for the IG index.

Some higher-yielding countries, such as Egypt and Sri Lanka, face challenges, but each situation is specific to the country in question and the path for each - in terms of avoiding default, undertaking a credible restructuring, or remaining in limbo without access to markets - depends as much on the domestic capacity for reform as it does on the global macro environment. The investment opportunity in each situation will be determined by the extent to which the various scenarios have been priced by bond and equity markets.

The US rate cycle is approaching its peak and the external debt asset class is set to outperform given its still wide spread by historical standards, a yield in excess of 8%, and substantial diversification available in an index comprising 69 countries and with 51% of bonds rated IG.

Local currency

The GBI-EM GD performed well with a return of 11.4% over the year, mostly through a rally in local markets with only 1% coming from stronger Emerging Markets currencies against the US dollar. The asset class has benefited from the early and effective monetary policy tightening pursued by many countries' central banks over the past couple of years, which has delivered macro stability and anchored inflation expectations in those countries, and also provided a path for policy easing in the foreseeable future. The index returns were particularly strong in Latin America and Eastern Europe, while Asia lagged. Weaker performance in the Middle East and Africa reflected the country-specific challenges in Egypt and South Africa.

The outlook for the US dollar is important to investor perceptions and performance of the local currency asset class. After a prolonged bull run, several factors point to a period of weakness in the US dollar, including large fiscal deficits, imbalanced external accounts and overly expensive currency and stocks, particularly in the context of a potential recession. For context, the trade-weighted real value of the US dollar peaked in 2022 only 10% below the 1985 Plaza Accord level and above the level reached around the dot-com bubble, thus representing one of the highest levels that the currency has seen in the past 50 years. In contrast, Emerging Markets currencies trade at attractive real effective exchange rate valuations.

Notwithstanding the returns delivered over the past 12 months, the local currency asset class continues to offer substantial value with an attractive yield of more than 6%, accelerating GDP growth and the potential for interest rate cuts in many of the 20 countries in the index if inflation continues to trend down.

Corporate debt

The CEMBI BD performed similarly to the sovereign market, with an investment return of 5.7% over the year supported by a tightening of spread from 400bps to 320bps. HY bonds outperformed with a return of 9.9% compared with 2.5% for IG bonds. In terms of regions, corporate assets performed strongly in Eastern Europe, with returns closer to the overall index performance in Latin America, Africa, Asia and the Middle East.

Default rates are low in Latin America, Africa and Middle East (less than 1%) and comparable to the US market. Higher default rates have been experienced due to policy tightening in China and as a consequence of the war in Ukraine, but it appears that overall default rates may have peaked in this cycle.

This asset class has characteristics that are superior to the equivalent US credit markets and, after a repricing of assets during the current interest rate cycle, underpin the relative value available in Emerging Markets corporate debt. These characteristics include:

- The index is highly diversified with more than 750 issuers across 63 countries. More than half (58%) of the bonds in the index are rated IG.

- Companies in Emerging Markets tend to have lower leverage compared with US and European peers, because management teams have a more conservative approach given the need to compensate for higher perceived country risk. Net leverage in the IG market is less than 1.5x EBITDA, compared with 2.5x to 3.5x in the US and Europe. There is a similar picture in the HY market, with net leverage of around 2x in Emerging Markets compared with 3.5x to 5x in the US and Europe.

- Despite lower leverage, Emerging Markets IG bonds offer a significant spread pick-up of 100bps per turn of leverage, compared with equivalent-rated US high-grade issuers.

- Similarly, the HY index offers an attractive yield of 9.5%, which despite the lower leverage is a point higher than the US HY market.

The above factors, when combined with the positive outlook for corporate earnings as a consequence of accelerating GDP growth and a supportive technical position given subdued new issuance, mean that the corporate debt asset class is well-positioned to deliver further positive returns over the medium term.

Equities

The MSCI EM index rose by 1.8% over the year, with the impact of tighter financial conditions in the first quarter and weaker than expected Asian economic data in the final quarter holding back returns compared with the fixed income markets. Frontier Markets were a little weaker (MSCI Frontier -2.8%), but small cap markets performed better, with the MSCI EM Small Cap index rising 13.3%.

After a challenging period in many countries, the outlook for equity market performance is positive. Importantly, aggregate GDP growth in emerging countries is expected to accelerate over the next few years, and consequently the premium to developed world growth will expand. Historically, there has been an understandable correlation between the relative performance of equity markets and economic growth differentials, which therefore provides a firm underpin to the asset class.

Against this backdrop of accelerating economic growth, the return opportunity in Emerging Markets equities reflects a combination of secular growth opportunities, particularly in Asian countries such as India and Indonesia, and other markets trading at substantial discounts to their history and fair value, for example in Latin America and China. Earnings growth expectations are modest, and in this context the substantial price/earnings ratio discount at which Emerging Markets equities trade to developed markets (11.0x compared with 18.5x for the S&P500) appears unjustified and supports outperformance of the asset class over the medium term.

Outlook

The structural drivers of growth in Emerging Markets are intact and underpinned by ongoing reforms in Asia, Latin America and Africa together with dominance over the world's natural resources and the supply chains necessary for energy transition. This is reflected in the continued superior GDP growth expected when compared with the developed world. However, this growth potential is not reflected in current valuations, providing investors with an opportunity to participate in the ongoing recovery in asset prices after a challenging few years in capital markets outside the US.

From a cyclical standpoint, there are several factors that should explicitly support the performance of Emerging Markets:

- Inflation is falling and interest rates are peaking following early and effective monetary policy tightening by Emerging Markets central banks, well ahead of the Fed and other developed world policymakers.

- China has a renewed focus on delivering economic growth and consequently is providing significant monetary and fiscal stimulus to its economy, which will have both a domestic impact but also a broader positive effect on trade. Policy choices must also recognise the need to navigate the headwinds of lower consumer confidence and demand following the reopening of its economy.

- After a prolonged bull run, the US dollar appears to have peaked in late 2022. Objectively, it is still overvalued, partially as a result of significant flows into the US equity market that is also vulnerable to a correction given its high valuation and the potential for a recession in a lagged response to tighter financial conditions.

With this backdrop, the near-term outlook for the main Emerging Markets asset classes is positive.

Given the historical strong correlation, equities should benefit from an expansion of the relative economic growth rate, and a weaker US dollar will support returns from this asset class for many developed world investors. Similarly, local currency bond returns will be underpinned by the monetary easing cycle in many countries together with dollar weakness.

IG sovereign and corporate markets offer meaningful yield enhancement compared with the developed world, and provide a lower-risk alternative for investors that remain concerned about aspects of the global macro environment. At the HY end of the market, distressed credits offer potentially significant recovery upside as the economic cycle turns.

Given the global macro challenges of the past few years, and the ongoing war in Europe and geopolitical tension in Asia, there is understandably an element of risk aversion among some investors, particularly those in the US. However, a broader set of investors increasingly recognises the opportunities represented by the superior growth prospects and attractive yields available across Emerging Markets. As has been seen in previous cycles, an increase in capital flows and investment supports economic growth in the developing world and can therefore lead to further asset class outperformance.

Business review

Successfully managing a cycle

Adjusted EBITDA margin of 54% reflects opening AuM below last year's average level, mitigated by effective cost management. With higher interest income and seed capital returns, diluted EPS is 12.2 pence, 4% lower YoY, and the balance sheet remains robust with £705 million of capital resources including more than £450 million of cash.

Assets under management

AuM declined by 13% over the year to US$55.9 billion, with the movement attributable to net outflows of US$11.5 billion, offset by positive investment performance of US$3.4 billion, delivered in each of the six investment themes. Reflecting the opening AuM level of US$64.0 billion, average AuM was 30% lower than in the prior year at US$58.2 billion (FY2022: US$83.6 billion).

Gross subscriptions of US$7.2 billion represent 11% of opening AuM, lower than in the prior year primarily as a consequence of cautious investor sentiment reflecting concerns over the macroeconomic backdrop in global markets (FY2022: US$13.1 billion, 14% of opening AuM).

Subscriptions were strongest in the external debt, local currency and equities investment themes, particularly as clients recognised that Emerging Markets central banks are ahead of their developed world counterparts in tackling inflation, and the US dollar appears to have peaked in 2022. External debt inflows were a combination of existing client top-ups and continued product development to capture the intrinsic value available in HY markets, and there were new institutional clients in local currency and equities.

Gross redemptions of US$18.7 billion, or 29% of opening AuM, were lower than in the prior year (FY2022: US$26.6 billion, 28% of opening AuM) and include US$2.3 billion of overlay/liquidity redemptions (FY2022: US$6.0 billion), but remain relatively high as a consequence of global macro concerns and market volatility, particularly in the first half of the year, meaning some investors shifted allocations in favour of traditionally perceived safe havens. This risk aversion was particularly evident in developed world investors, reflected in a lower proportion of AuM from clients in the Americas and the fact that Ashmore's Emerging Markets-domiciled clients increased from 27% to 33% of Group AuM.

Consistent with the rally in markets from the September lows, Ashmore's investment performance and net flow momentum improved in the second half of the financial year. Positive investment performance of US$2.6 billion in H2 compares with US$0.8 billion in H1, and net outflows approximately halved from US$7.6 billion in H1 to US$3.9 billion in H2.

The total net outflow for the period of US$11.5 billion (FY2022: US$13.5 billion net outflow) comprises a net outflow from retail clients of US$0.7 billion (24% of opening intermediary retail AuM), reflecting the typically shorter investment horizon, and net redemptions from institutional clients of US$10.8 billion (18% of opening institutional AuM).

Ashmore's local offices continued to perform well and illustrated the benefits of diversification. Total AuM was stable at US$7.0 billion (30 June 2022: US$6.9 billion) with only modest net outflows of US$0.3 billion. As described in the CEO review, these businesses have significant growth potential as they participate in the development of independent domestic asset management industries, and there are opportunities to expand the network over time to enhance the strategic and financial benefits to the Group.

AuM movements by investment theme

The development during the period of AuM by theme is shown in the table below. The local currency investment theme includes US$6.3 billion of overlay/liquidity funds (30 June 2022: US$7.2 billion).

The Group's AuM remain geographically diverse and broadly consistent with recent periods, with 37% of AuM invested in Latin America, 29% in Asia Pacific, 13% in Eastern Europe and 21% in the Middle East and Africa.

Clients

Ashmore's clients are predominantly a diversified set of institutions, representing 96% of AuM (30 June 2022: 95%), with the remainder sourced through intermediary retail channels. Segregated accounts represent 81% of AuM (30 June 2022: 81%).

Ashmore's principal mutual fund platforms are in Europe and the US, which in total represent AuM of US$5.7 billion in 43 funds. The European SICAV range comprises 31 funds with AuM of US$4.8 billion (30 June 2022: US$5.4 billion in 30 funds) and the US 40-Act range has 12 funds with AuM of US$0.9 billion (30 June 2022: US$1.0 billion in 12 funds).

Investment performance

As at 30 June 2023, 67% of AuM is outperforming over one year, 69% over three years and 49% over five years (30 June 2022: 45%, 28% and 48%, respectively).

Characteristically, as markets have started to recover from oversold levels, Ashmore's investment processes have delivered meaningful outperformance. In addition to the consistently strong relative performance in local currency, IG and equities strategies, there has been a notable improvement in some of the other, higher yielding fixed income strategies.

Current valuations across the Emerging Markets asset classes underpin additional recovery performance in coming periods, and the inherent value in Ashmore's portfolios support the delivery of further outperformance for clients.

Financial review

Revenues

Opening AuM and average AuM were 23% and 30%, respectively, below the average AuM of the prior year, and this lower level of AuM delivered the 25% fall in net revenue to £196.4 million. On an adjusted basis, excluding FX translation effects, net revenue fell by 24% to £195.4 million.

Net revenue

Net management fee income declined by 25% to £183.2 million. This reflects the lower average AuM and a net management fee margin of 38bps (FY2022: 39bps), partially offset by the benefit of a lower average GBP:US$ rate in this period. At constant FY2022 exchange rates, net management fee income reduced by 32%.

The slight decline in the net management fee margin YoY reflects the positive effects from investment theme mix and large mandate flows offset by the impact of market performance over the year (stronger performance in lower margin strategies and accounts) and competition and other mix effects.

Performance fees of £5.1 million (FY2022: £4.5 million) were realised in the year, and delivered by a range of funds in the local currency, blended debt and alternatives investment themes. Approximately US$12 billion of the Group's AuM, or 21% of the total, is eligible to earn performance fees at 30 June 2023. The Group continues to expect its diverse sources of net management fee income to generate the majority of its net revenues.

Translation of the Group's non-Sterling assets and liabilities, excluding seed capital, resulted in an unrealised FX gain of £1.0 million (FY2022: £5.3 million gain). The Group's effective hedging programme and the active management of FX exposures during the period meant that realised and unrealised hedging gains of £4.4 million were delivered (FY2022: £6.3 million gain). Therefore, the Group recognised a total FX gain of £5.4 million in revenues (FY2022: £11.6 million gain).

Other revenue of £2.7 million was comparable to the prior year (FY2022: £2.9 million).

The table below summarises the net management fee income, performance fee income and net management fee margin by investment theme.

Operating costs

Total operating costs of £94.0 million (FY2022: £98.5 million) include £1.3 million of expenses incurred by seeded funds that are required to be consolidated (FY2022: £1.4 million), as disclosed in note 20. On an adjusted basis, taking into account the impact of seed capital and the proportion of the accrual for variable compensation that relates to FX translation gains, operating costs were reduced by 4% compared with the prior year. Adjusted operating costs fell by 7% at constant FY2022 exchange rates.

Staff costs increased by 13% to £31.4 million, of which nearly half was due to the lower average GBP:US$ rate. There was also the impact of wage inflation in certain locations and a 1% higher average headcount. The underlying increase in staff costs was primarily in the first half of the year, with costs in the second half being broadly flat on the first half.

Other operating costs, excluding consolidated fund expenses and depreciation and amortisation, increased by 13% to £23.3 million. FX movements account for approximately half of the increase and the remainder was due to the full year impact of returning towards more normal levels of business travel and office occupancy.

Ashmore accrued charitable donations of £0.5 million (FY2022: £0.6 million), equivalent to 0.5% of profit before tax.

Variable compensation has been accrued at 25% of EBVCIT, resulting in a charge of £34.8 million. The higher proportion of profits reflects the point in the cycle, where Ashmore is delivering investment outperformance for clients as markets recover, but the financial performance lags with the impact of lower average AuM levels. In absolute terms, the charge is 24% lower than in the prior year (FY2022: £45.6 million) and consistent with the fall in adjusted net revenue.

The combined depreciation and amortisation charges for the period of £3.2 million were similar to the prior year.

Adjusted EBITDA

The impact of the lower revenue base, partially mitigated by lower operating costs, means that adjusted EBITDA declined by 35% from £164.3 million to £106.2 million. This delivered an adjusted EBITDA margin of 54% for the year (FY2022: 64%).

Finance income

Net finance income of £33.9 million (FY2022: £2.1 million finance expense) includes gains relating to seed capital investments, which are described in more detail below. Excluding such items, net interest income for the period of £15.9 million increased compared with the prior year (FY2022: £1.6 million) due to the benefit of higher market interest rates on the Group's cash deposits.

Seed capital

The following table summarises the principal IFRS items in the accounts to assist in understanding the financial impact of the Group's seed capital programme on profits. The seed capital investments generated realised gains of £2.4 million and an unrealised mark-to-market loss of £10.7 million, to give an aggregate loss of £8.3 million for the year (FY2022: £49.9 million loss). This comprises a £15.3 million loss in respect of consolidated funds (FY2022: £40.5 million loss) and a £7.0 million gain in respect of unconsolidated funds (FY2022: £9.4 million loss).

Impact of seed capital investments on profits

Profit before tax

Statutory profit before tax was 6% lower at £111.8 million (FY2022: £118.4 million) as a consequence of the decline in adjusted EBITDA mitigated by lower losses on seed capital investments and the benefit of higher interest rates on finance income.

Taxation

The effective tax rate of 22.6% (FY2022: 22.4%) is slightly higher than the blended UK corporation tax rate of 20.5% for the year (FY2022: 19.0%) due to the geographic mix of the Group's profits in the period, the valuation of deferred tax assets relating to share-based remuneration and the impact of seed capital gains and losses. Note 12 to the financial statements provides a full reconciliation of this difference compared with the UK corporation tax rate.

The Group's current effective tax rate, based on its geographic mix of profits and prevailing tax rates, is approximately 19% to 20%.

Earnings per share

Basic EPS for the period fell by 7% to 12.4 pence (FY2022: 13.4 pence) and diluted EPS declined by 4% from 12.6 pence to 12.2 pence.

On an adjusted basis, excluding the effects of FX translation, seed capital-related items and relevant tax, diluted EPS was 32% lower at 12.7 pence (FY2022: 18.7 pence).

Balance sheet

Ashmore's consistent approach is to maintain a strong and liquid balance sheet over market cycles, enabling it to support the commercial demands of current and prospective investors, and to take advantage of strategic development opportunities.

As at 30 June 2023, total equity attributable to shareholders of the parent was £898.8 million (30 June 2022: £945.0 million). The Group has no debt.

The level of capital required to support the Group's activities, including its regulatory requirements, is £80.6 million. As at 30 June 2023, the Group had total capital resources of £704.8 million, equivalent to 99 pence per share, and therefore representing an excess of £624.2 million over the Board's level of required capital.

Cash

Ashmore's business model delivers a high conversion rate of operating profits to cash. Based on operating profit of £77.4 million for the period (FY2022: £119.2 million), the Group generated £111.6 million of cash from operations (FY2022: £182.1 million). The operating cash flows after excluding consolidated funds represent 105% of adjusted EBITDA (FY2022: 113%).

Cash and cash equivalents by currency

Excluding cash held in consolidated funds, the Group's cash and cash equivalents reduced by £73.7 million to £468.3 million (30 June 2022: £542.0 million), principally due to new seed capital investments. There was an increase in the proportion of cash held in Sterling following the sale of US dollars for Sterling at attractive levels in the first half of the year.

Seed capital investments

The Group's seed capital programme has delivered growth in third-party AuM with approximately US$6 billion of AuM in funds that have been seeded, representing 11% of total Group AuM.

During the year, the Group made new investments of £63.9 million and profitably realised £24.6 million from previous investments. The unrealised mark-to-market loss on the portfolio was £19.8 million, meaning that the market value of the Group's seed capital investments increased to £291.5 million (30 June 2022: £272.0 million).

Subscriptions in the period were focused on developing new funds in the external debt, local currency and equities themes, including providing access to the Group's local asset management capabilities.

The ability to redeem seed capital was facilitated by successful realisations by funds in the alternatives theme, particularly in respect of infrastructure-related investments in Latin America, and matching client flows into equity funds managed locally in Saudi Arabia.

The mark-to-market reduction in value was due to changes in asset valuations in alternatives funds, predominantly in the first half of the year, with positive returns delivered by funds in the fixed income and equities themes.

The diversified mix of seed capital investments means that the underlying fund portfolios, some of which are consolidated under IFRS 10, have exposure to a range of Emerging Markets asset classes, including sovereign and corporate fixed income, listed equities, private equity, real estate and infrastructure, and a wide array of industries including education, energy, financials, healthcare, industrials, basic materials, transport and utilities.

Ashmore has integrated the consideration of ESG factors into its investment processes, which therefore means the Group's seed capital investments are in funds that are scored in accordance with Ashmore's proprietary ESG methodology and may contribute to Ashmore's involvement in industry initiatives such as Climate Action 100+, NZAMI and UN PRI.

Seed capital market value by currency

As at 30 June 2023, two-thirds of the Group's seed capital is held in funds with at least monthly dealing frequency, such as SICAV or US 40-Act mutual funds. Ashmore has also made seed capital commitments to funds of £8.9 million that were undrawn at the period end, giving a total value for the Group's seed capital programme of approximately £300 million.

Goodwill and intangible assets

At 30 June 2023, goodwill and intangible assets on the Group's balance sheet totalled £86.9 million (30 June 2022: £90.9 million). The movement in the period is primarily the result of an FX revaluation loss in reserves of £3.9 million (FY2022: £10.5 million gain).

Shares held by EBT

The EBT purchased £15.6 million of ordinary shares during the period in anticipation of the vesting of employee share awards. Consequently, at 30 June 2023, the EBT owned 50,834,683 ordinary shares (30 June 2022: 55,512,301 ordinary shares), representing 7.1% of the Group's issued share capital (30 June 2022: 7.8%).

Foreign exchange

The majority of the Group's fee income is received in US dollars and it is the Group's policy to hedge up to two-thirds of the notional value of budgeted foreign currency-denominated net management fees. Foreign currency assets and liabilities, including cash, are marked to market at the period end exchange rate with movements reported in either revenues or OCI.

Movements in the GBP:US$ and other exchange rates over the period increased net management fees by 7%, increased operating costs by 3%, and resulted in a translation gain in net revenue of £1.0 million on the Group's foreign currency assets and liabilities and a £1.3 million mark-to-market gain on the Group's seed capital investments.

Included in OCI is an unrealised FX translation loss on non-Sterling assets and liabilities of £26.2 million (FY2022: £80.2 million gain), which, in addition to the goodwill movement described above, mainly comprises £11.5 million on the value of seed capital investments and £7.6 million on the Group's cash balances.

Dividend

The Board's policy is to pay a progressive ordinary dividend over time, taking into consideration factors such as the prospects for the Group's earnings, demands on the Group's financial resources, and the markets in which the Group operates.

The Board recognises the importance of the ordinary dividend to shareholders and, taking into consideration the profit for the year, the substantial cash flows delivered, the strength of the balance sheet, the positive near-term outlook as described in the CEO review and the substantial medium-term growth opportunities available to Ashmore, it has recommended a final dividend of 12.1 pence per share.

If approved by shareholders, the dividend will be paid on 8 December 2023 to all shareholders on the register on 3 November 2023.

Tom Shippey

Group Finance Director

5 September 2023

RISK MANAGEMENT

In accordance with the 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 provide only reasonable and not absolute assurance against material misstatement or loss.

Principal and emerging risks, controls and mitigants

The table below summarises those principal risks that the Group has assessed as being most significant currently, together with examples of associated controls and mitigants. Reputational and conduct risks are common to most aspects of Ashmore's strategy and business model.

Ashmore's internal control framework considers the assessment and management of emerging risks alongside its principal risks, current examples of which are:

- the impact of inflation;

- geopolitical and sanctions risks; and

- ESG risks including regulatory and industry focus on potential greenwashing, legal uncertainty and litigation risks arising from the industry's differing interpretation of ESG regulation, and the impact of ESG factors on investors' decisions to invest in Emerging Markets.

Principal risks and associated controls and mitigants

Consolidated statement of comprehensive income

For the year ended 30 June 2023

Consolidated balance sheet

As at 30 June 2023

Approved by the Board on 5 September 2023 and signed on its behalf by:

Consolidated statement of changes in equity

For the year ended 30 June 2023

Consolidated cash flow statement

For the year ended 30 June 2023

Company balance sheet

As at 30 June 2023

The Company has taken the exemption under section 408 of the Companies Act 2006 not to present its profit and loss account and related notes. The Company's profit for the year ended 30 June 2023 was £120.1 million (30 June 2022: £188.6 million).

The financial statements of Ashmore Group plc (registered number 03675683) were approved by the Board on 5 September 2023 and signed on its behalf by:

Company statement of changes in equity

For the year ended 30 June 2023

Company cash flow statement

For the year ended 30 June 2023

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 2023 were authorised for issue by the Board of Directors on 5 September 2023. The principal activity of the Group is described in the Directors' report.

2) Basis of preparation

The Group and Company financial statements for the year ended 30 June 2023 have been prepared in accordance with UK-adopted international accounting standards.

The financial statements have been prepared on a going concern basis under the historical cost convention, except for the measurement at fair value of derivative financial instruments and financial assets and liabilities that are held at fair value through profit or loss.

The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 that allows it not to present its individual statement of comprehensive income and related notes.

Going concern

The Board of Directors has considered the resilience of the Group, taking into account its current financial position, and the principal and emerging risks facing the business in the context of the current economic outlook. The Board reviewed cash flow forecasts for a period of 12 months from the date of approval of these financial statements which indicate that the Group will have sufficient funds to meet its liabilities as they fall due for that period. The Board applied stressed scenarios, including severe but plausible downside assumptions on AuM, profitability of the Group and known commitments. While there are wider market uncertainties that may impact the Group, the stressed scenarios, which assumed a significant reduction in revenue for the entire forecast period, show that the Group and Company would continue to operate profitably and meet their liabilities as they fall due for a period of at least 12 months from the date of approval of the annual financial statements. The financial statements have therefore been prepared on a going concern basis.

Principal estimates and judgements

The preparation of the financial statements in conformity with UK-adopted international accounting standards requires the use of certain accounting estimates, and management to exercise its judgement in the process of applying the Group's accounting policies. The estimates and judgements used in preparing the financial statements are periodically evaluated and are based on historical experience and other factors, including expectations of future events 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.

There are areas of the financial statements where the use of estimation is important, but where the risk of material adjustment is not significant, including the assessment of performance conditions attached to certain executive share awards (note 10), assumptions used in the valuation of level 3 seed capital investments (note 19) and deferred tax assets (note 18). The areas where judgements are made include the impairment review of goodwill (note 15), the calculation of lease assets and liabilities (note 16) and consolidation of seed capital investments (note 20).

3) New Standards and Interpretations not yet adopted

There were no Standards or Interpretations that were in issue and required to be adopted by the Group as at the date of authorisation of these consolidated financial statements. No other Standards or Interpretations have been issued that are expected to have a material impact on the Group's financial statements.

4) Significant accounting policies

The following principal accounting policies have been applied consistently where applicable to all years presented in dealing with items considered material in relation to the Group and Company financial statements, unless otherwise stated.

Basis of consolidation

The consolidated financial statements of the Group comprise the financial statements of the Company and its subsidiaries, associates and joint ventures. This includes an Employee Benefit Trust (EBT) established for the employee share-based awards and consolidated investment funds.

Interests in subsidiaries

Subsidiaries are entities, including investment funds, over which the Group has control as defined by IFRS 10. The Group has control if it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date when control ceases. The Group reassesses whether or not it controls an entity if facts and circumstances indicate that there are changes to one or more of the elements of control.

The profit or loss and each component of other comprehensive income are attributed to the equity holders of the Company and to any non-controlling interests. Based on their nature, the interests of third parties in consolidated funds are classified as liabilities and appear as 'Third-party interests in consolidated funds' on the Group's balance sheet.

Associates and joint ventures are presented as single-line items in the statement of comprehensive income and balance sheet. 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 2023.

A change in the ownership interest of a consolidated entity that does not result in a loss of control by the Group is accounted for as an equity transaction. If the Group loses control over a consolidated entity, it derecognises the related assets, goodwill, liabilities, non-controlling interest and other components of equity, and any gain or loss is recognised in consolidated comprehensive income. Any investment retained is recognised at its fair value at the date of loss of control.

Interests in associates and joint arrangements

Associates are partly owned entities over which the Group has significant influence but no control. Joint ventures are entities through which the Group and other parties undertake an economic activity which is subject to joint control.

Investments in associates and interests in joint ventures are measured using the equity method of accounting. Under this method, the investments are initially recognised at cost, including attributable goodwill, and are adjusted thereafter for the post-acquisition changes in the Group's share of net assets. The Group's share of post-acquisition profit or loss is recognised in the statement of comprehensive income. Where the Group's financial year is not coterminous with those of its associates or joint ventures, unaudited interim financial information is used after appropriate adjustments have been made.

Interests in consolidated structured entities

The Group acts as fund manager to investment funds that are considered to be structured entities. Structured entities are entities that have been designed so that voting or similar rights are not the dominant factor in deciding which party has control: for example, when any voting rights relate to administrative tasks only and the relevant activities of the entity are directed by means of contractual arrangements. The Group's assets under management are managed within structured entities. These structured entities typically consist of unitised vehicles such as Société d'Investissement à Capital Variable (SICAVs), limited partnerships, unit trusts and open-ended and closed-ended vehicles which entitle third-party investors to a percentage of the vehicle's net asset value.

The Group has interests in structured entities as a result of the management of assets on behalf of its clients. Where the Group holds a direct interest in a closed-ended fund, private equity fund or open-ended pooled fund such as a SICAV, the interest is accounted for either as a consolidated structured entity or as a financial asset, depending on whether the Group has control over the fund or not. Control is determined in accordance with IFRS 10, based on an assessment of the level of power and aggregate economic interest that the Group has over the fund, relative to third-party investors. Power is normally conveyed to the Group through the existence of an investment management agreement and/or other contractual arrangements. Aggregate economic interest is a measure of the Group's exposure to variable returns in the fund through a combination of direct interest, expected share of performance fees, expected management fees, fair value gains or losses, and distributions receivable from the fund. The Group concludes that it acts as a principal when the power it has over the fund is deemed to be exercised for self-benefit, considering the level of aggregate economic exposure in the fund and the assessed strength of third-party investors' kick-out rights. The Group concludes that it acts as an agent when the power it has over the fund is deemed to be exercised for the benefit of third-party investors.

If the Group concludes that it acts as a principal, it is deemed to have control and, therefore, will consolidate a fund as if it were a subsidiary. If the Group concludes that it does not have control over the fund, the Group recognises and measures 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 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 to consolidated and unconsolidated structured entities is provided in note 27.

Foreign currency

The Group's financial statements are presented in Pounds Sterling (Sterling), which is also the Company's functional and presentation currency. Items included in the financial statements of each of the Group's entities are measured using the functional currency, which is the currency that prevails in the primary economic environment in which the entity operates.

Foreign currency transactions

Transactions in foreign currencies are translated into the respective functional currencies of the Group entities at the spot exchange rates at the date of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into the functional currency at the spot exchange rate at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on translation are generally recognised in comprehensive income, except for qualifying cash flow hedges to the extent that the hedge is effective, in which case foreign currency differences arising are recognised in other comprehensive income.

Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into Sterling at the spot exchange rates at the balance sheet date. The revenues and expenses of foreign operations are translated into Sterling at rates approximating to the foreign exchange rates ruling at the dates of the transactions.

Foreign currency differences are recognised in other comprehensive income, and accumulated in the foreign currency translation reserve, except to the extent that the translation difference is allocated to non-controlling interests.

When a foreign operation is disposed of such that control is lost, the cumulative amount in the foreign currency translation reserve related to that foreign operation is reclassified to comprehensive income as part of the gain or loss on disposal. If the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests.

If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign currency differences arising on the item form part of the net investment in the foreign operation and are recognised in other comprehensive income, and accumulated in the foreign currency translation reserve within equity.

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree.

The consideration transferred for the acquisition is generally measured at the acquisition date fair value, as are the identifiable net assets acquired, liabilities incurred (including any asset or liability resulting from a contingent consideration arrangement) and equity instruments issued by the Group in exchange for control of the acquiree.

Acquisition-related costs are expensed as incurred, except if they are related to the issue of debt or equity securities.

Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. If the contingent consideration is classified as equity, it will not be remeasured and settlement is accounted for within equity.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss.

Goodwill

The cost of a business combination in excess of the fair value of net identifiable assets or liabilities acquired, including intangible assets identified, is recognised as goodwill and stated at cost less any accumulated impairment losses. Goodwill has an indefinite useful life, is not subject to amortisation and is tested annually for impairment or when there is an indication of impairment.

Intangible assets

The cost of intangible assets, such as management contracts and brand names, acquired as part of a business combination is their fair value as at the date of acquisition. The fair value at the date of acquisition is calculated using the discounted cash flow methodology and represents the valuation of the profits expected to be earned from the management contracts and brand name in place at the date of acquisition.

Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and impairment losses. Intangible assets with finite life are amortised on a systematic basis over their useful lives. The useful life of an intangible asset which has arisen from contractual or other legal rights does not exceed the period of the contractual or other legal rights.

Non-controlling interests (NCI)

The Group recognises NCI in an acquired entity either at fair value or at the NCI's proportionate share of the acquired entity's net identifiable assets. This decision is made on an acquisition-by-acquisition basis. Changes to the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost is determined on the basis of the direct and indirect costs that are directly attributable. Property, plant and equipment are depreciated using the straight-line method over the estimated useful lives, assessed to be five years for office equipment and four years for IT equipment. The residual values and useful lives of assets are reviewed at least annually.

The Group's property, plant and equipment include right-of use assets recognised on lease arrangements in accordance with IFRS 16 Leases.

Leases

The Group's lease arrangements primarily consist of leases relating to office space. Obligations and rights under lease agreements are recognised and classified within property, plant and equipment on the Group's consolidated statement of financial position in accordance with IFRS 16.

The Group initially records a lease liability reflecting the present value of the future contractual cash flows to be made over the lease term, discounted using the rate implicit in the lease, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. Where this rate is not readily available, the Group applies the incremental borrowing rate applicable for each lease arrangement. A right-of-use asset is also recorded at the value of the lease liability plus any directly related costs and estimated dilapidation expenses and is presented within property, plant and equipment. Interest is accrued on the lease liability using the effective interest rate method to give a constant rate of return over the life of the lease whilst the balance is reduced as lease payments are made. The right-of-use asset is depreciated over the life of the lease as the benefit of the lease is consumed.

After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects the likelihood that it will exercise (or not exercise) a term extension option.

The cost of short-term (less than 12 months) leases is expensed on a straight-line basis over the lease term.

Deferred acquisition costs

Costs that are directly attributable to securing an investment management contract are deferred if they can be identified separately and measured reliably and it is probable that they will be recovered. Deferred acquisition costs represent the incremental costs incurred by the Group to acquire an investment management contract, typically on a closed-ended fund. The Group amortises the deferred acquisition asset recognised on a systematic basis, in line with the revenue generated from providing the investment management services over the life of the fund.

Financial instruments

Recognition and initial measurement

Financial instruments are recognised when the Group becomes party to the contractual provisions of an instrument, initially at fair value plus transaction costs except for financial assets classified at fair value through profit or loss. Purchases or sales of financial assets are recognised on the trade date, being the date that the Group commits to purchase or sell the asset.

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or been transferred or when the Group has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when the obligation under the liability has been discharged, cancelled or expires.

Subsequent measurement

The subsequent measurement of financial instruments depends on their classification in accordance with IFRS 9 Financial Instruments.

Under IFRS 9, the Group classifies its financial assets into two measurement categories: amortised cost and FVTPL. The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

- it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

All financial assets not classified as measured at amortised cost are measured at FVTPL. The Group classifies its financial liabilities at amortised cost or derivative liabilities measured at FVTPL.

Amortised cost is the amount determined based on moving the initial amount recognised for the financial instrument to the maturity value on a systematic basis using a fixed interest rate (effective interest rate), taking account of repayment dates and initial premiums or discounts.

Financial assets

The Group classifies its financial assets into the following categories: investment securities at FVTPL, financial assets at FVTPL and financial assets measured at amortised cost.

The Group may, from time to time, invest seed capital in funds where a subsidiary is the investment manager or an adviser. Where the holding in such investments is deemed to represent a controlling stake and is acquired exclusively with a view to subsequent disposal through sale or dilution, these seed capital investments are recognised as financial assets measured at FVTPL. If a seed capital investment remains under the control of the Group for more than one year from the original investment date, the underlying fund is consolidated line by line.

Investment securities at FVTPL

Investment securities represent securities, other than derivatives, held by consolidated funds. These securities are measured at fair value with gains and losses recognised through the consolidated statement of comprehensive income.

Financial assets at FVTPL

Financial assets at FVTPL include certain readily realisable interests in seeded funds, non-current financial assets measured at fair value and derivatives. From the date the financial asset is recognised, all subsequent changes in fair value, foreign exchange differences, interest and dividends are reflected in the consolidated statement of comprehensive income and presented in finance income or expense.

(i) Non-current financial assets measured at fair value

Non-current financial assets include closed-end funds that are measured at FVTPL. They are held at fair value with changes in fair value being recognised through the consolidated statement of comprehensive income.

(ii) Current financial assets measured at fair value

The Group classifies readily realisable interests in seeded funds as current financial assets measured at FVTPL with fair value changes being directly recognised through the consolidated statement of comprehensive income. Fair value is measured based on the proportionate net asset value in the fund.

(iii) Derivatives

Derivatives include foreign exchange forward contracts and options used by the Group to manage its foreign currency exposures and those held in consolidated funds. Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and subsequently remeasured at fair value. Transaction costs are recognised immediately in the statement of comprehensive income. All derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in the fair value of derivatives are taken directly in comprehensive income, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income.

Financial assets measured at amortised cost

(i) Trade and other receivables

Trade and other receivables are initially recorded at fair value plus transaction costs. The fair value on acquisition is normally the cost. Subsequent to initial recognition these assets are measured at amortised cost less impairment loss allowances. Impairment losses are recognised in the statement of comprehensive income for expected credit losses, and changes in those expected credit losses over the life of the instrument. Loss allowances are calculated based on lifetime expected credit losses at each reporting date.

(ii) Cash and cash equivalents

Cash represents cash at bank and in hand, and cash equivalents comprise short-term deposits and investments in money market instruments that are redeemable on demand or with an original maturity of three months or less. The carrying amount of these assets approximates their fair value.

Financial liabilities

The Group classifies its financial liabilities into the following categories: financial liabilities at FVTPL and financial liabilities at amortised cost.

Financial liabilities at FVTPL

Financial liabilities at FVTPL include derivative financial instruments and third-party interests in consolidated funds. They are carried at fair value with gains or losses recognised in the consolidated statement of comprehensive income within finance income or expense.

Financial liabilities at amortised cost

Other financial liabilities including trade and other payables are subsequently measured at amortised cost using the effective interest rate method. Interest expense is recognised as it is incurred using the effective interest method, which allocates interest at a constant rate of return over the expected life of the financial instrument based on the estimated future cash flows.

Fair value of financial instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the 'exit price') in an orderly transaction between market participants at the measurement date. In determining fair value, the Group uses various valuation approaches and establishes a hierarchy for inputs used in measuring fair value that maximises the use of relevant observable inputs and minimises the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Group.

Unobservable inputs are inputs that reflect the Group's judgements about the assumptions other market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.

Securities listed on a recognised stock exchange, or dealt on any other regulated market that operates regularly, is recognised and open to the public, are valued at the last known available closing bid price. If a security is traded on several actively traded and organised financial markets, the valuation is made on the basis of the last known bid price on the main market on which the securities are traded. In the case of securities for which trading on an actively traded and organised financial market is not significant, but which are bought and sold on a secondary market with regulated trading among security dealers (with the effect that the price is set on a market basis), the valuation may be based on this secondary market.

Where instruments are not listed on any stock exchange or not traded on any regulated markets, valuation techniques are used by valuation specialists. These techniques include the market approach, the income approach or the cost approach. The use of the market approach generally consists of using comparable market transactions or using techniques based on market observable inputs, while the use of the income approach generally consists of the net present value of estimated future cash flows, adjusted as deemed appropriate for liquidity, credit, market and/or other risk factors.

Investments in funds are valued on the basis of the last available net asset value of the units or shares of such funds.

The fair value of the derivatives is their quoted market price at the balance sheet date.

Hedge accounting

The Group applies the general hedge accounting model in IFRS 9. This requires the Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness.

The Group uses forward and option contracts to hedge the variability in cash flows arising from changes in foreign exchange rates relating to management fee revenues. The Group designates only the change in fair value of the spot element of the forward and option contracts in cash flow hedging relationships. The effective portion of changes in fair value of hedging instruments is accumulated in a cash flow hedge reserve as a separate component of equity.

The Group applies cash flow hedge accounting when the transaction meets the specified hedge accounting criteria. To qualify, the following conditions must be met:

- formal documentation of the relationship between the hedging instrument(s) and hedged item(s) must exist at inception;

- the hedged cash flows must be highly probable and must present an exposure to variations in cash flows that could ultimately affect comprehensive income;

- the effectiveness of the hedge can be reliably measured; and

- the hedge must be highly effective, with effectiveness assessed on an ongoing basis.

For qualifying cash flow hedges, the change in fair value of the effective hedging instrument is initially recognised in other comprehensive income and is released to comprehensive income in the same period during which the relevant financial asset or liability affects the Group's results.

Where the hedge is highly effective overall, any ineffective portion of the hedge is immediately recognised in comprehensive income. Where the instrument ceases to be highly effective as a hedge, or is sold, terminated or exercised, hedge accounting is discontinued.

Derecognition of financial assets and liabilities

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risk and rewards of ownership of the asset. The Group derecognises a financial liability when the Group's obligations are discharged, cancelled or they expire.

Impairment of financial assets

Under IFRS 9, impairment losses on the Group's financial assets at amortised cost are measured using an expected credit loss (ECL) model. Under this model, the Group is required to account for expected credit losses, and changes in those expected credit losses, over the life of the instrument. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition and, consequently, more timely information is provided about expected credit losses.

The Group applies the simplified approach to calculate expected credit losses for financial assets measured at amortised cost. Under this approach, expected credit losses are calculated based on the life of the instrument.

Assets measured at amortised cost

The Group measures loss allowances at an amount equal to lifetime expected credit losses. Expected credit loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. The Group's financial assets subject to impairment assessment under the ECL model comprise cash deposits held with banks and trade receivables. In assessing the impairment of financial assets under the ECL model, the Group assesses whether the risk of default has increased significantly since initial recognition, by considering both quantitative and qualitative information, and the analysis is based on the Group's historical experience of credit default, including forward-looking information.

The Group's trade receivables comprise balances due from management fees, performance fees and expense recoveries from funds managed, and are generally short term and do not contain financing components. Factors considered in determining whether a default has taken place include how many days past the due date a payment is, deterioration in the credit quality of a counterparty, and knowledge of specific events that could influence a counterparty's ability to pay.

The Group assesses lifetime expected credit losses based on historical observed default rates, adjusted by forward-looking estimates regarding the economic conditions within the next year. Externally derived credit ratings have been identified as representing the best available determinant of counterparty credit risk for cash balances and credit risk is deemed to have increased significantly if the credit rating has significantly deteriorated at the reporting date relative to the credit rating at the date of initial recognition.

Impairment of non-financial assets

For all other assets other than goodwill, an impairment test is performed annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets, other than goodwill, that have suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

Goodwill

Goodwill is tested for impairment annually or whenever there is an indication that the carrying amount may not be recoverable based on management's judgements regarding the future prospects of the business, estimates of future cash flows and discount rates. When assessing the appropriateness of the carrying value of goodwill at year end, the recoverable amount is considered to be the greater of fair value less costs to sell or value in use. The pre-tax discount rate applied is based on the Group's weighted average cost of capital after making allowances for any specific risks.

The business of the Group is managed as a single unit, with asset allocations, research and other such operational practices reflecting the commonality of approach across all fund themes. Therefore, for the purpose of testing goodwill for impairment, the Group is considered to have one cash-generating unit to which all goodwill is allocated and, as a result, no further split of goodwill into smaller cash-generating units is possible and the impairment review is conducted for the Group as a whole.

An impairment loss in respect of goodwill cannot be reversed.

Net revenue

Net revenue is total revenue less distribution costs and including foreign exchange. The Group's total revenue includes management fees, performance fees and other revenue. The primary revenue source for the Group is fee income received or receivable for the provision of investment management services.

The Group recognises revenue in accordance with the principles of IFRS 15 Revenue from Contracts with Customers.

The core principle of IFRS 15 is that revenue is recognised to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Group applies the IFRS 15 five-step model for recognising revenue, which consists of identifying the contract with the customer; identifying the relevant performance obligations; determining the amount of consideration to be received under the contract; allocating the consideration to each performance obligation; and earning the revenue as the performance obligations are satisfied.

The Group's principal revenue recognition policies are summarised below:

Management fees

Management fees are presented net of rebates, and are calculated as a percentage of net fund assets managed in accordance with individual management agreements. Management fees are calculated and recognised on a monthly basis in accordance with the terms of the management fee agreements. Management fees are typically collected on a monthly or quarterly basis.

Performance fees

Performance fees are presented net of rebates, and are calculated as a percentage of the appreciation in the net asset value of a fund above a defined hurdle. Performance fees are earned from some arrangements when contractually agreed performance levels are exceeded within specified performance measurement periods, typically over one year. The fees are recognised when they can be reliably estimated and/or crystallised, and there is deemed to be a low probability of a significant reversal in future periods. This is usually at the end of the performance period or upon early redemption by a fund investor. Once crystallised, performance fees typically cannot be clawed-back.

Rebates

Rebates relate to repayments of management and performance fees charged subject to a rebate agreement, typically with institutional investors, and are calculated based on an agreed percentage of net fund assets managed and recognised as the service is received. Where rebate agreements exist, management and performance fees are presented on a net basis in the consolidated statement of comprehensive income.

Other revenue

Other revenue principally comprises fees for other services, which are typically driven by the volume of transactions, along with revenues that vary in accordance with the volume of fund project development activities.

Other revenue includes transaction, structuring and administration fees, project management fees, and reimbursement by funds of costs incurred by the Group. This revenue is recognised as the relevant service is provided and it is probable that the fee will be collected.

Distribution costs

Distribution costs are costs of sales payable to external intermediaries for marketing and investor servicing. Distribution costs vary based on fund assets managed and the associated management fee revenue, and are expensed over the period in which the service is provided.

Employee benefits

Obligations for contributions to defined contribution pension plans are recognised as an expense in the statement of comprehensive income when payable in accordance with the scheme particulars.

Share-based payments

The Group issues share awards to its employees under share-based compensation plans.

For equity-settled awards, the fair value of the amounts payable to employees is recognised as an expense with a corresponding increase in equity over the vesting period after adjusting for the estimated number of shares that are expected to vest. The fair value is measured at the grant date using an appropriate valuation model, taking into account the terms and conditions upon which the instruments were granted. At each balance sheet date prior to vesting, the cumulative expense representing the extent to which the vesting period has expired and management's best estimate of the awards that are ultimately expected to vest is calculated. The movement in cumulative expense is recognised in the statement of comprehensive income with a corresponding entry within equity.

For cash-settled awards, the fair value of the amounts payable to employees is recognised as an expense with a corresponding liability on the Group's balance sheet. The fair value is measured using an appropriate valuation model, taking into account the estimated number of awards that are expected to vest and the terms and conditions upon which the instruments were granted. During the vesting period, the liability recognised represents the portion of the vesting period that has expired at the balance sheet date multiplied by the fair value of the awards at that date. Movements in the liability are recognised in the statement of comprehensive income.

The Group has in place an intragroup recharge arrangement for equity-settled share-based awards whereby the parent Company is reimbursed based on the grant-date cost of share awards granted to employees of the subsidiary entity. During the vest period, the subsidiary entity recognises a share-based payment expense in accordance with IFRS 2 requirements with an intercompany payable to the parent Company. The parent Company recognises an intercompany receivable and a corresponding credit within equity as a share-based payment reserve. The intercompany balances are settled regularly and reported as current assets/liabilities.

Finance income and expense

Finance income includes interest receivable on the Group's cash and cash equivalents, and both realised and unrealised gains on financial assets at FVTPL.

Finance expense includes both realised and unrealised losses on financial assets at FVTPL. Interest expense on lease liabilities is presented within finance expense.

Taxation

Tax expense for the year comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year, and any adjustment to the tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the balance sheet date in the countries where the Group operates. Current tax also includes withholding tax arising from dividends.

Deferred tax

Deferred tax is recognised using the balance sheet liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following differences are not provided for:

- goodwill not deductible for tax purposes; and

- differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the balance sheet date.

Dividends

Dividends are recognised when shareholders' rights to receive payments have been established.

Equity shares

The Company's ordinary shares of 0.01 pence each are classified as equity instruments. Ordinary shares issued by the Company are recorded at the fair value of the consideration received or the market price at the day of issue. Direct issue costs, net of tax, are deducted from equity through share premium. When share capital is repurchased, the amount of consideration paid, including directly attributable costs, is recognised as a change in equity.

Own shares

Own shares are held by the Employee Benefit Trust (EBT). The holding of the EBT comprises own shares that have not vested unconditionally to employees of the Group. In both the Group and Company, own shares are recorded at cost and are deducted from retained earnings.

Segmental information

Key management information, including revenues, margins, investment performance, distribution costs and AuM flows, which is relevant to the operation of the Group, is reported to and reviewed by the Board on the basis of the investment management business as a whole. Hence, the Group's management considers that the Group's services and its operations are not run on a discrete geographic basis and comprise one business segment (being provision of investment management services).

Company-only accounting policies

In addition to the above accounting policies, the following specifically relates to the Company:

Investment in subsidiaries

Investments by the Company in subsidiaries are stated at cost less, where appropriate, provisions for impairment.

5) Segmental information

The Group's operations are reported to and reviewed by the Board on the basis of the investment management business as a whole, hence the Group is treated as a single segment. The key management information considered is adjusted EBITDA which is £106.2 million for the year as reconciled in the Business review (FY2022: adjusted EBITDA of £164.3 million was derived by adjusting operating profit by £3.1 million of depreciation and amortisation expense, £46.2 million of loss related to seed capital and £4.2 million of foreign exchange gains). The disclosures below are supplementary, and provide the location of the Group's non-current assets at year end other than financial assets and deferred tax assets. Disclosures relating to revenue by location are in note 6.

Analysis of non-current assets by geography

6) Revenue

Management fees are accrued throughout the year in line with prevailing levels of AuM 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 (FY2022: 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

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.

Foreign exchange gains are shown below.

8) Finance income/(expense)

Included within interest and investment income is interest earned on cash deposits of £16.2 million (FY2022: £2.0 million) and investment income of £11.0 million (FY2022: £5.7 million) on consolidated funds (note 20c).

Included within net realised and unrealised gains on seed capital investments totalling £7.0 million (FY2022: £9.4 million losses) are £2.6 million gains (FY2022: £12.5 million losses) on financial assets measured at FVTPL (note 20a), £1.4 million gains (FY2022: £4.2 million gains) on non-current financial assets measured at fair value (note 20b) and £3.0m realised gains on consolidated funds (FY2022: £1.1 million losses on financial assets held for sale).

9) Personnel expenses

Personnel expenses during the year comprised the following:

Number of employees

At 30 June 2023, the number of investment management employees of the Group (including Executive Directors) during the year was as follows:

Directors' remuneration

Disclosures of Directors' remuneration during the year as required by the Companies Act 2006 are included in the Remuneration report.

There are retirement benefits accruing to two Executive Directors under a defined contribution scheme (FY2022: 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:

The total expense recognised for the year in respect of equity-settled share-based payment awards was £18.5 million (FY2022: £24.5 million), of which £0.4 million (FY2022: £0.2 million) relates to share awards granted to key management personnel.

The Executive Omnibus Incentive Plan (Omnibus Plan)

The Omnibus Plan was introduced prior to the Company listing in October 2006 and provides for the grant of share awards, market value options, premium cost options, discounted options, linked options, phantoms and/or nil-cost options to employees. The Omnibus Plan will also allow bonuses to be deferred in the form of share awards with or without matching shares. Awards granted under the Omnibus Plan typically vest after five years from date of grant, with the exception of bonus awards which vest after the shorter of five years from date of grant or on the date of termination of employment. Awards under the Omnibus Plan are accounted for as equity-settled, with the exception of phantoms which are classified as cash-settled.

The combined cash and equity-settled payments below represent the share-based payments relating to the Omnibus Plan.

Total expense by year awards were granted (excluding national insurance)

Awards outstanding under the Omnibus Plan were as follows:

i) Equity-settled awards

ii) Cash-settled awards

iii) Total awards