Ashmore Regulatory News (ASHM)

Ashmore Group plc

8 February 2023

RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2022

Ashmore Group plc (Ashmore, the Group), the specialist Emerging Markets asset manager, today announces its unaudited results for the six months ended 31 December 2022.

-  Financial performance reflects lower average AuM, point in the cycle and strength of business model

-  Assets under management (AuM) of US$57.2 billion1. Positive market performance of US$0.8 billion and net outflows of US$7.6 billion reflecting subdued investor risk appetite for much of the period

-  Adjusted net revenue of £107.7 million, 22% lower YoY, comprising net management fees of £98.0 million and performance fees of £3.7 million

-  Adjusted operating costs reduced by 3% YoY, delivering adjusted EBITDA of £63.2 million, 31% lower YoY, and margin of 59%

-  Unrealised mark-to-market loss on seed capital investments of £16.5 million compared with £25.2 million gain in prior year period

-  Profit before tax of £53.8 million, 54% lower YoY

-  Adjusted diluted EPS of 7.8 pence, 25% lower than in the prior year period

-  Consistent balance sheet strength with approximately £700 million of capital resources including £480 million of cash

-  Interim dividend maintained at 4.8 pence per share

-  Delivering outperformance as markets recover

-  Strong relative performance, typical for Ashmore's active investment processes at this stage in a recovery cycle

- 75% of AuM outperforming benchmarks over the six months

-  Longer-term investment performance continues to reflect a period of macro headwinds for Emerging Markets

- 45% of AuM outperforming over one year, 40% over three years and 43% over five years

-  Local asset management platforms delivering diversification benefits

-  Ongoing development of the local businesses provides strong, long-term growth potential

-  Resilient AuM of US$6.6 billion, 5% lower YoY

-  Contribution to Group continues to increase, now 12% of AuM and 14% of profits

-  Emerging Markets set for further outperformance

-  Global macro headwinds are receding

-  Emerging Markets valuations remain at attractive levels, significant discounts to Developed Markets assets

-  Light investor positioning in Emerging Markets after a period of global risk aversion

-  Continuing market recovery supports Emerging Markets outperforming in coming periods

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

"The global macro environment in 2022 was complex, but the headwinds it produced are now receding and leading to an increase in investor risk appetite. This, combined with highly attractive valuations across equities and fixed income in Emerging Markets and low investor allocations, mean that Emerging Markets are set to continue outperforming as markets recover. Ashmore is well-positioned to benefit from this environment, with active management delivering alpha across equity and fixed income strategies."

1. As reported on 16 January 2023.

Analysts briefing

There will be a presentation for sell-side analysts at 9.00am on 8 February 2023 at UBS, 5 Broadgate, London, EC2M 2QS. A copy of the presentation will be made available on the Group's website at www.ashmoregroup.com.

Contacts

For further information please contact:

Ashmore Group plc

FTI Consulting

Chief Executive Officer's report

Global capital markets sentiment, and therefore asset prices, experienced significant fluctuations over the past six months, driven by inflation data, the hawkishness of developed world central banks, the ongoing war in Ukraine and other geopolitical risks, and China taking initial steps to withdraw its zero COVID policy.

This market volatility is illustrated by the wide range of monthly returns for the Emerging Markets indices in the period, for example from -6% to +8% for external debt and from -12% to +15% for equities. For the six-month period as a whole, the main Emerging Markets fixed income indices delivered positive returns of between 2% and 3%, while equities fell by 3% having been particularly weak in the late summer global market drawdown.

Against this backdrop, Ashmore's AuM declined by 11% over the six months to US$57.2 billion, average AuM fell by 35% compared with the prior year period, and consequently adjusted EBITDA was 31% lower. Adjusted diluted EPS, which excludes the unrealised seed capital loss and FX translation, is 7.8 pence, 25% lower than in the prior year period.

Some of the global macro headwinds faced in 2022, such as the Federal Reserve's aggressive policy tightening, are now receding; China reopening its economy will support trade more broadly; and several emerging countries are benefiting from the monetary policy decisions taken over the past two years. Valuations continue to be attractive across Emerging Markets and investor positioning is light given the uncertainty and macro challenges of the past couple of years. Therefore, after a positive shift in sentiment towards the end of 2022, and consequently a strong increase in new issuance in early 2023, risk appetite should continue to increase, underpinning market performance and ultimately leading to capital flows into the Emerging Markets. Ashmore is currently delivering outperformance across a broad range of equity and fixed income strategies, as is typical at this stage in a market recovery, and it is well-positioned to benefit from the positive outlook.

The Board has considered a number of factors in determining the interim dividend, including the performance over the six-month period, the Group's strong financial position, cash generation, and the near-term outlook. Accordingly, and taking into account the importance of the dividend to shareholders, the Board has maintained the interim dividend at 4.8 pence per share.

Market review

Global macro conditions were complex during the six-month period, with the Fed and other developed world central banks raising interest rates aggressively in the face of high inflation, the ongoing war in Ukraine, and China starting to unwind its zero COVID policy. There was significant uncertainty, and the central bank rates backdrop, in particular, represented a rapid adjustment from a prolonged period of unconventional monetary policy. While the transition has caused some adjustment, the return to a more normal policy environment is welcome and will support more balanced global capital allocations, which should benefit Emerging Markets given the attractive risk-adjusted returns available.

Consequently, market performance during the six months to 31 December 2022 was highly volatile. The range of monthly returns for the EMBI GD was -6% to +8%, with spreads moving between 450 and 600 basis points, both elevated levels, and the MSCI EM equity index monthly returns ranged from -12% to +15%. This volatility is masked when looking at the overall Emerging Markets performance, with positive low single-digit returns in fixed income, which outperformed global bond markets that declined over the period, and a small drawdown in equities compared with a modest increase in the MSCI World index.

Inevitably, this uncertainty and market volatility meant that investors continued to exhibit caution, and the risk aversion that began following Russia's invasion of Ukraine continued through much of the period. Emerging Markets therefore experienced outflows, which, together with higher rates, has put pressure on some smaller, externally funded sovereigns. In contrast, countries with local currency bond markets are starting to see the benefits of nearly two years of monetary policy tightening, with inflation starting to fall and the potential for rate cuts in the foreseeable future.

Although Emerging Markets rebounded strongly towards the end of the period, the valuations available across equity and fixed income markets remain at oversold levels and therefore support further significant recovery returns over the coming periods. For example, external debt spreads are still 50% wider than before the COVID pandemic and equities continue to trade at approximately a 30% discount to world equity markets.

The sections below briefly describe the performance in each of the main asset classes over the six-month period.

External debt

The external debt market is well-established, large (US$1.6 trillion bonds outstanding), highly diversified (70 countries), and the majority (51%) of the bonds are rated investment grade. Furthermore, although a benchmark index was established nearly 30 years ago, it has growth potential as approximately half of the 156 emerging nations have not yet issued publicly-tradeable bonds.

Over the six months to 31 December, the EMBI GD delivered a positive return of 3.2%. Consistent with the comments above, the performance in each of the two quarters was markedly different, with a 4.6% drawdown over the three months to September followed by an 8.1% rally in the quarter to December. High yield bonds outperformed investment grade over the period with returns of +6.7% and -0.1%, respectively. The index spread over US Treasuries tightened from 540bps to 450bps over the six months, more than offsetting the increase in US bond yields.

Notwithstanding the recent rally, this spread is still highly elevated compared with historical levels and therefore offers investors an attractive entry point into the external debt asset class. As the US rate cycle approaches its end point, further spread compression should deliver performance, with HY bonds increasingly driving returns and outperformance.

Local currency

The local currency government bond market is substantially larger than the external debt market with US$16.4 trillion of bonds outstanding. Many emerging countries have recognised the merits of funding in their own currency, which together with a broadening and deepening of local capital markets, underpins continued growth in the investment universe.

However, index representation continues to lag the underlying asset class development, with only 20 countries and 16% of bonds outstanding included in the benchmark GBI-EM GD. As structural issues are overcome, for example the removal of capital controls, then the index should better reflect the breadth of opportunity available in local currency bond markets.

Over the past six months, the GBI-EM GD index rose by 3.3%, similar to the external debt index, and consistent with external debt, a weaker first quarter (-4.7%) followed by a strong rebound over the three months to December (+8.5%).

At the period end, the index offered a nominal yield of 6.9%, which compares favourably with the 3% yield on the global bond index and with the backdrop of easing inflation pressures in many emerging countries as a consequence of effective monetary policy over the past two years. Additionally, and as was seen towards the end of 2022, a weaker US dollar can deliver meaningful currency returns for investors in local markets.

Corporate debt

In common with its sovereign counterpart, the corporate debt market primarily comprises local currency issuance, but with higher index representation for hard currency bonds. Of the US$20.4 trillion of corporate bonds outstanding, US$3.4 trillion are in hard currencies, of which 34% are included in the CEMBI BD benchmark index. This index is highly diversified with nearly 763 issuers in 59 countries, and 56% of the bonds are rated investment grade.

The corporate debt index slightly underperformed sovereign markets over the six months, with a return of 2.0%. Again, there was a notable difference between the two quarters with a 2.6% decline over the three months to September followed by a 4.7% gain. In common with the external debt market, HY corporate debt outperformed IG, with returns of +5.4% and -0.6%, respectively, over the six months.

Two notable events affected the index default rate, without which it would have been 1.8%, in line with the US HY market default rate of 1.7%. The actual default rate of 14% was heavily influenced by the deleveraging in the China real estate market (c.7% points impact) and the war in Ukraine (c.5% points impact).

Corporate debt is a highly diverse asset class and therefore market performance will inevitably be the result of events relating to specific issuers, but several factors underpin a positive outlook for returns:

- companies in emerging countries continue to have lower levels of leverage than developed world counterparts, since it is typically the result of operational and investment needs rather than financial engineering;

- for every turn of leverage, Emerging Markets issuers offer a 100bps to 300bps yield pick-up over US issuers with equivalent credit ratings, providing for a favourable relative return;

- there are highly attractive yields available in both HY (c.10%) and IG (c.6%) markets, and market technicals are supportive after a period of significantly reduced issuance; and

- certain companies and quasi-sovereign issuers continue to benefit from commodity price cycles.

Blended debt

Consistent with the positive returns in the constituent asset classes, the standard blended debt benchmark (50% EMBI GD, 25% GBI-EM GD and 25% ELMI+) increased by 3.2% over the six-month period.

An allocation to blended debt provides investors with access to return opportunities across the broadest possible range of Emerging Markets fixed income asset classes. For the new investor in Emerging Markets this provides a comprehensive exposure to the broad debt investment universe, and more experienced investors can define bespoke indices encompassing both external debt and local currency markets to reflect specific investment objectives and risk appetite.

Significantly, blended debt investors can seek to exploit the material difference in the annual returns delivered by the fixed income asset classes, of at least 500bps, and on average in excess of 1,000bps.

Equities

The MSCI EM index fell by 3.0% over the period, although again this masks significant variation between the two constituent quarters: it fell 12% in the September quarter and rallied 10% in the December quarter. MSCI Frontier Markets delivered a -4.6% return over the six months and the MSCI EM Small Cap index delivered a positive return of +2.5%.

Below the headline index level, there is a high variation of returns in a diversified investment universe. However, there were some notable broad themes driving market performance over the period. In the September quarter, investors focused on global economic growth concerns in the face of persistently high inflation and unwaveringly hawkish developed world central banks. The US dollar was particularly strong in this environment, detracting from local currency returns.

The environment shifted positively towards the end of the period, with China announcing several positive policy measures including the first steps in the withdrawal of its zero COVID policy, inflation moderated slightly and the US dollar was weaker.

While the near-term outlook for global equity markets still has some challenges, the prospects for Emerging Markets equities in 2023 are positive. As ever, one of the important factors will be China, where many of the recent headwinds are receding and policy is turning more accommodative as the authorities refocus on generating economic growth. There are risks associated with the removal of the zero COVID policy, notably the impact of higher infection rates on economic activity, but the policy direction is clearer.

More broadly, as inflationary pressures subside, central banks will be in a position to stabilise and eventually ease monetary policy, providing additional economic stimulus. Overall, economic growth across Emerging Markets is expected to accelerate compared with the developed world. Importantly, valuations do not reflect this more encouraging outlook, with Emerging Markets equities trading on a PER of 11x, a discount to the long-run average of 12.5x, and substantially cheaper than world equity markets on 15x.

Market outlook

Emerging Markets faced several headwinds in 2022, most notably China's restrictive zero COVID policy, aggressive interest rate tightening by the US Federal Reserve, and Russia invading Ukraine. While regrettably the war continues, the other two factors are receding and should present less of a challenge to Emerging Markets' performance in 2023.

That being said, it is likely that market volatility will continue in the near term due to the combination of inflation and tight monetary policy leading to deleveraging and a developed world recession, and a non-linear reopening path for China's economy. Therefore, in the near term, investment grade assets are likely to outperform, although high yield should deliver higher absolute returns and outperformance over the medium term as investor risk appetite improves.

From a fundamental perspective, the early and effective monetary policy tightening by central banks in emerging countries has contained inflation and several countries have started to experience deflation. Policy rate stability, if not cuts, will support economic activity and, as China reopens, this will have positive implications for world trade and many economies. In aggregate, the IMF expects Emerging Markets' GDP growth to accelerate compared with the developed world, returning to a premium of nearly 3% in 2023 and 2024. This growth outlook is supportive of a re-rating of Emerging Markets equities, particularly given modest single-digit earnings growth expectations this year.

Finally, the valuations of Emerging Markets fixed income assets remain attractive, with yields and spreads high compared with historical levels, and offering higher potential risk-adjusted returns than developed world bond and equity markets. These valuations, when combined with investors' light positioning in Emerging Markets, suggest risk appetite should increase over the next 12 months, supporting market performance and ultimately leading to a sustained inflection in capital flows to the Emerging Markets.

Ashmore is well-positioned for this environment, with active management currently delivering outperformance across equity and fixed income strategies and current valuations supporting further performance in the years ahead.

Assets under management

As at 31 December 2022, AuM were US$57.2 billion, 11% lower over the period. The movement was attributable to net outflows of US$7.6 billion, partially offset by aggregate positive investment performance for the six months of US$0.8 billion.

Average AuM of US$58.9 billion was 35% lower than in the same period in the prior year (H1 2021/22: US$91.2 billion).

Gross subscriptions of US$4.3 billion represent 7% of opening AuM, a lower absolute level than in the prior year period (H1 2021/22: US$7.8 billion, 8% of opening AuM) and reflected subdued investor risk appetite in the face of several global macro and geopolitical headwinds. The inflows were predominantly into existing funds or mandates and biased towards external debt, which reflects experienced clients seeking to take advantage of attractive valuations after a period of market weakness, particularly in high yield markets, and is typical of the 'early adopter' behaviour previously seen at this point in the market cycle.

New client mandates were notable in the local currency and equity themes, including in the Group's local operations in Saudi Arabia.

Gross redemptions of US$11.9 billion, or 19% of opening AuM, were higher than in the prior year period (H1 2021/22: US$11.0 billion, 12% of opening AuM) and include US$1.8 billion of overlay/liquidity redemptions (H1 2021/22: US$1.9 billion).

As a result of the uncertain and volatile market environment throughout much of 2022, asset allocation and portfolio de-risking decisions influenced redemptions in the local currency, external debt and blended debt investment themes. Corporate debt redemptions were at a relatively low level. The absolute levels of subscriptions and redemptions in the equities theme are relatively high, reflecting the naturally higher turnover rates experienced by some of the local asset management businesses such as Indonesia.

The total net outflow for the period of US$7.6 billion (H1 2021/22: US$3.2 billion) comprises a net outflow from retail clients of US$0.6 billion (20% of opening intermediary retail AuM) and net redemptions from institutional clients of US$7.0 billion (11% of opening institutional AuM).

Ashmore continues to focus on diversifying its assets under management through growth in equities, capital sourced through intermediary retail channels and investment grade strategies, each of which represents approximately 5% to 10% of the Group's current assets under management.

The profile of the Group's client base remains consistent. The clients are predominantly a diversified set of institutions, representing 96% of AuM, with the remainder sourced through intermediary retail channels. Segregated accounts represent 82% of AuM (30 June 2022: 81%) and, in line with the third phase of the Group's strategy, 30% of the Group's AuM has been sourced from clients domiciled in Emerging Markets (30 June 2022: 27%).

Ashmore's principal mutual fund platforms are in Europe and the US, which in total represent AuM of US$5.7 billion in 42 funds. The European SICAV range comprises 30 funds with AuM of US$4.7 billion (30 June 2022: US$5.4 billion in 30 funds) and the US 40-Act range has 12 funds with AuM of US$1.0 billion (30 June 2022: US$1.0 billion in 12 funds).

The Group's investments are geographically diverse and broadly consistent with recent periods, with 40% of AuM invested in Latin America, 24% in Asia Pacific, 21% in Eastern Europe and 15% in the Middle East and Africa.

Investment performance

Ashmore's active investment processes have delivered broad-based outperformance across fixed income and equity strategies over the past six months, as is typical at this stage in a recovery cycle, and illustrating the importance of active management and the inherent value available in oversold assets in Emerging Markets.

With a tailwind of positive market returns in fixed income asset classes, Ashmore outperformed in external debt, local currency, and IG strategies in external debt, corporate debt and blended debt. The returns in non-IG strategies in corporate debt and blended debt were in line with benchmark indices.

Ashmore's All cap equity strategy delivered positive returns and more than 600bps of alpha compared with the MSCI EM index over the period. The Small cap strategy also outperformed, and there was slight underperformance in Active and Frontier markets equities.

As a consequence of the stronger relative returns, as at 31 December 2022, 45% of AuM is outperforming relevant benchmarks over one year, 40% over three years and 43% over five years (30 June 2022: 45%, 28% and 48%, respectively).

Local platforms

The Group's local asset management platforms provide diversification benefits and strong long-term growth potential. In this period, the combined AuM in these businesses fell by 5% to US$6.6 billion, representing 12% of the total, and demonstrating greater resilience than the Group's global AuM.

The local businesses generate 17% of the Group's revenues and, reflecting the relatively early stage of development in some of them, the EBITDA margin is approaching 50%.

Consistent with the Group's remuneration philosophy, the local management team, employees and partners typically own a meaningful equity stake in the business with Ashmore as a controlling shareholder. After recognising these minority interests, the local platforms generate 14% of the Group's profit attributable to shareholders.

Consistent with the third phase of the Group's strategy to mobilise Emerging Markets capital, Ashmore will continue to develop its network of local businesses, including exploring opportunities to expand the existing businesses and to enter new markets.

AuM movements by investment theme as classified by mandate

The table below shows the development during the period of AuM by investment theme. The local currency investment theme includes US$5.9 billion of overlay/liquidity funds (30 June 2022: US$7.2 billion).

Financial review

Revenues

Net revenue declined by 20% to £110.3 million as a result of lower net management fees compared with the prior year period. On an adjusted basis, excluding foreign exchange translation effects, net revenue fell by 22% to £107.7 million.

Net revenue

Management fee income, net of distribution costs, declined by 25% to £98.0 million. This is primarily a function of the lower average AuM compared with the prior year period, partially offset by the benefit of a lower average GBP:USD rate of 1.1795 (H1 2021/22: 1.3636). The net management fee margin increased slightly to 40bps (H1 2021/22: 39bps). At constant H1 2021/22 exchange rates, net management fee income reduced by 35%.

The net management fee margin increased by one basis point compared with the prior year period. The impact of redemptions from overlay and other large institutional accounts was partially offset by flows into new and existing large mandates (combined positive impact of approximately two basis points), and there was a modest negative impact (approximately one basis point) from investment theme mix effects, for example lower average AuM in blended debt, and other factors such as competition and product mix.

These factors also explain the year-on-year movements in the investment theme margins shown in the table below, for example with overlay and other institutional redemptions affecting local currency; new mandates and top-ups to existing large accounts relevant to the external debt and blended debt themes; and lower margin funds within the alternatives theme returned capital to investors following successful asset realisations.

Fee income and net management fee margin by investment theme

Performance fees of £3.7 million (H1 2021/22: £3.1 million) were realised in the six months, and delivered by a range of funds in the local currency, blended debt and alternatives investment themes. Approximately US$11.5 billion of the Group's AuM, or 20% of the total, is eligible to earn performance fees as at 31 December 2022. The Group continues to expect its diverse sources of net management fee income to generate the substantial 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 £2.6 million (H1 2021/22: £0.3 million gain) reflecting a lower GBP:USD dollar rate at the period end. The Group's effective hedging programme and the active management of foreign currency exposures during the period meant that realised and unrealised hedging gains of £4.7 million were generated (H1 2021/22: £2.7 million gain). Therefore, a total FX gain of £7.3 million was recognised in revenues, higher than in the prior year period (H1 2021/22: £3.0 million gain).

Other revenue of £1.3 million was comparable to the prior year period (H1 2021/22: £1.4 million).

Operating costs

Total operating costs of £47.4 million (H1 2021/22: £48.6 million) include £0.6 million of expenses incurred by seeded funds that are required to be consolidated (H1 2021/22: £0.7 million), as disclosed in note 15(c). On an adjusted basis, taking into account the impact of seed capital and the variable compensation accrual on foreign exchange translation losses, operating costs were reduced by 3% compared with the prior year period. Adjusted operating costs fell by 8% at constant H1 2021/22 exchange rates.

Operating costs

Staff costs of £15.6 million were 14% higher than in the prior year period, of which approximately half was due to weaker GBP:USD, and the remainder of the growth because of salary increases, given wage inflation in certain jurisdictions where the firm operates, and slightly higher headcount.

The Group's headcount increased 1% from 315 to 318 over the six months, and the average headcount of 317 was 2% higher than in the prior year period.

Other operating costs, excluding consolidated fund expenses, depreciation and amortisation, increased by 12% to £11.0 million, again with about half of the increase due to FX movements. On an underlying basis, the increase reflects a return to office-based working and more normal levels of business travel as pandemic-related restrictions were eased during 2022.

Variable compensation has been accrued at 22.5% of EBVCIT reflecting the current point in the cycle where Ashmore is delivering strong investment performance as markets recover while the Group's financial performance is driven by lower average AuM levels. This results in a charge of £18.5 million (H1 2021/22: £22.8 million).

The combined depreciation and amortisation charges for the period were similar to the prior year period at £1.7 million.

Adjusted EBITDA

The impact of lower average AuM, partially offset by lower operating costs, means that adjusted EBITDA fell by 31% from £92.0 million to £63.2 million, resulting in an adjusted EBITDA margin of 59% (H1 2021/22: 67%).

Finance income

Net finance income of £14.8 million (H1 2021/22: £1.9 million expense) includes profits relating to seed capital investments, which are described in more detail below. Excluding such profits, net interest income for the period of £6.5 million (H1 2021/22: £0.2 million) increased compared with the prior year period, reflecting higher achieved interest rates on the Group's cash balances.

Seed capital

The table below 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 Group's seed capital investments generated a total mark-to-market loss of £16.5 million (H1 2021/22: £25.2 million gain). This comprises a £17.2 million loss in respect of consolidated funds, including £7.6 million of finance income, and a £0.7 million gain in respect of unconsolidated funds that is reported in finance income.

Impact of seed capital investments on profits

Profit before tax

Statutory profit before tax was 54% lower at £53.8 million (H1 2021/22: £116.0 million) because of the decline in adjusted EBITDA and the mark-to-market losses on the Group's seed capital investments.

Taxation

The impact of the Group's share price on the allowable value of share-based remuneration provided to employees and the geographic mix of the Group's profits in the period mean that the effective tax rate of 17.7% (H1 2021/22: 17.8%) is lower than the prevailing effective UK corporation tax rate of 20.5% (H1 2021/22: 19.0%). Note 9 to the interim condensed financial statements provides a full reconciliation of this difference compared with the UK corporation tax rate.

The Group's ongoing effective tax rate, based on its current geographic mix of profits and prevailing tax rates, is expected to be in the range 17% to 18%.

Earnings per share

Basic earnings per share for the period fell by 54% to 6.5 pence (H1 2021/22: 14.2 pence) and diluted earnings per share also declined by 54% from 13.3 pence to 6.1 pence.

On an adjusted basis, excluding the effects of FX translation, seed capital-related items and relevant tax, diluted earnings per share were 25% lower at 7.8 pence (H1 2021/22: 10.4 pence).

Balance sheet

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

As at 31 December 2022, total equity attributable to shareholders of the parent was £898.7 million (31 December 2021: £919.1 million; 30 June 2022: £945.0 million).

The Board has assessed that the level of capital required to support the Group's activities, including its regulatory requirements, is £84.5 million. As at 31 December 2022, the Group had total capital resources of £704.1 million, equivalent to 99 pence per share, and thereby providing an excess of £619.6 million over the Board's level of required capital.

Cash

Ashmore's business model continues to deliver a high conversion rate of operating profits to cash. Based on operating profit of £38.7 million for the period (H1 2021/22: £117.9 million), the Group generated £45.7 million of cash from operations (H1 2021/22: £82.8 million). The operating cash flows after excluding consolidated funds represent 73% of the adjusted EBITDA for the period of £63.2 million (H1 2021/22: 92%).

Cash and cash equivalents by currency

Excluding cash held in consolidated funds, the Group's cash and cash equivalents declined by £61.2 million over the period to £480.8 million (30 June 2022: £542.0 million), reflecting the payment of the final ordinary dividend and cash variable remuneration in respect of the prior financial year. The currency mix of the Group's cash is weighted more towards Sterling at the period end following the sale of US dollars for Sterling at attractive levels.

Seed capital investments

The Group's seed capital programme has delivered growth in third-party AuM, with nearly US$6 billion of AuM in funds that have been seeded, representing 10% of current Group AuM.

During the six-month period, the Group made new investments of £10.8 million and realised £8.3 million from previous investments. The unrealised mark-to-market loss on the portfolio was £13.7 million, meaning that the market value of the Group's seed capital investments was lower at £260.8 million at 31 December 2022 (30 June 2022: £272.0 million).

New seed capital investments in the period were primarily in the local currency theme. Redemptions were made as a result of successful realisations of assets in Latin America and subsequent capital distributions by funds in the alternatives theme, and to match flows into equity funds in Saudi Arabia.

The negative mark-to-market was driven by changes to asset valuations in alternatives funds and lower equity market values, partially offset bv a small positive contribution from seed investments in liquid fixed income funds.

Ashmore has seed capital commitments to funds of £11.3 million that were undrawn at the period end, giving a total value for the Group's seed capital programme of approximately £270 million.

Seed capital market value by currency

Approximately two-thirds of the Group's seed capital is held in funds with better than one-month dealing frequency, such as SICAV or US 40-Act mutual funds.

Goodwill and intangible assets

At 31 December 2022, goodwill and intangible assets on the Group's balance sheet totalled £91.7 million (30 June 2022: £90.9 million). The movement in the period is primarily the result of an FX revaluation gain in reserves of £0.9 million (H1 2021/22: £1.5 million gain).

Shares held by the Employee Benefit Trust

The Group's EBT purchases and holds shares in anticipation of the vesting of share awards. At 31 December 2022, the EBT owned 52,936,626 ordinary shares (30 June 2022: 55,512,301 ordinary shares), representing 7.4% of the Group's issued share capital (30 June 2022: 7.8%).

Foreign exchange

The majority of the Group's fee income continues to be 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 other comprehensive income (OCI).

Movements in the GBP:USD and other exchange rates over the period increased net management fees by 10%, increased adjusted operating costs by 4%, and resulted in translation gains in net revenue of £2.6 million on the Group's foreign currency assets and liabilities and a £1.3 million mark-to-market loss on the Group's unconsolidated seed capital investments.

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.

Accordingly, and notwithstanding the lower statutory profits reported in this period, the Board has declared an interim dividend of 4.8 pence per share (H1 2020/21: 4.8 pence per share), which will be paid on 29 March 2023 to all shareholders on the register on 3 March 2023.

Mark Coombs

Chief Executive Officer

7 February 2023

Risk management

A detailed description of the Group's risk management function and internal control framework, which provides an ongoing process for identifying, evaluating and managing the Group's emerging and principal risks, was included in the 2022 Annual Report and Accounts, together with a list of principal risks and examples of associated controls and mitigants. This disclosure covered strategy and business, client, treasury, investment and operational risks. There have been no material changes to the principal risks and associated controls and mitigants during the six-month period.

Interim condensed consolidated statement of comprehensive income

For the six months ended 31 December 2022

Interim condensed consolidated balance sheet

As at 31 December 2022

Interim condensed consolidated statement of changes in equity

For the six months ended 31 December 2022

INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 31 December 2022

INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT CONTINUED

For the six months ended 31 December 2022

Notes to the interim condensed consolidated financial statements

1) General information

These interim condensed consolidated financial statements of Ashmore Group plc and its subsidiaries (the Group) for the six months ended 31 December 2022 were authorised for issue by the Directors on 7 February 2023.

Ashmore Group plc is listed on the London Stock Exchange and incorporated and domiciled in the United Kingdom.

2) Basis of preparation

The interim condensed consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standard 34 (IAS 34) Interim Financial Reporting and the Disclosure Guidance and Transparency Rules (the DTR) of the UK's Financial Conduct Authority (the UK FCA).

The interim condensed consolidated set of financial statements has been prepared by applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the year ended 30 June 2022, which were prepared in accordance with UK-adopted international accounting standards and in conformity with the requirements of the Companies Act 2006.

These interim condensed consolidated financial statements and accompanying notes are unaudited, do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and do not include all the information and disclosures required in annual statutory financial statements. They should be read in conjunction with the Group's Annual Report and Accounts for the year ended 30 June 2022 which are available on the Group's website. Those statutory accounts were approved by the Board of Directors on 1 September 2022 and have been filed with Companies House. The report of the auditors on those accounts was unqualified.

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 interim 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 assets under management, 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 the release of these results. The interim financial statements have therefore been prepared on a going concern basis.

3) New accounting standards and interpretations

The Group did not implement the requirements of any standards or interpretations that were in issue but were not required to be adopted by the Group at the half year. No other standards or interpretations issued and not yet effective are expected to have an impact on the Group's interim consolidated financial statements.

4) 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 £63.2 million for the period (H1 2021/22: adjusted EBITDA of £92.0 million was derived by adjusting operating profit by £1.6 million of depreciation and amortisation expense, £27.3 million income related to seed capital and £0.2 million of foreign exchange gains). The additional disclosures below provide the location of the Group's non-current assets at the period end other than financial instruments and deferred tax assets. Disclosures relating to revenue by location are provided in note 5 below.

Analysis of non-current assets by geography

5) Revenue

Management fees are accrued throughout the period in line with prevailing levels of assets under management and performance fees are recognised when the specific assessment criteria have been met and it is highly probable that a significant income reversal will not subsequently occur. The Group is not considered to be reliant on any single source of revenue. None of the Group's funds provided more than 10.0% of total revenue in the period (H1 2021/22: none; FY2021/22: none).

Analysis of revenue by geography

6) 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.

7) Finance income

Included within interest and investment income are gains of £7.6 million from investment securities on consolidated funds (note 15c).

Included within net realised and unrealised gains and losses on seed capital investments measured at fair value are £0.2 million gains on financial assets measured at FVTPL (note 15a), £0.2 million losses on non-current financial assets measured at fair value (note 15b) and realised gains of £0.7 million relating to consolidated funds (note 15c).

8) Share-based payments

The cost related to share-based payments recognised by the Group in the interim condensed consolidated statement of comprehensive income is shown below:

The total expense recognised for the period in respect of equity-settled share-based payment awards was £8.8 million (H1 2021/22: £13.3 million; FY2021/22: £24.5 million), of which £0.3 million relates to share awards granted to key management personnel (H1 2021/22: £0.8 million; FY2021/22: £0.2 million).

The Executive Omnibus Incentive Plan (Omnibus Plan)

Share awards outstanding under the Omnibus Plan were as follows:

The weighted average share price of awards granted to employees under the Omnibus Plan during the period was £2.14 (H1 2021/22: £3.74; FY2021/22: £3.73), as determined by reference to the average Ashmore Group plc closing share price for the five business days prior to grant.

The liability arising from cash-settled awards under the Omnibus Plan at the end of the period and reported within trade and other payables in the interim condensed consolidated balance sheet is £0.4 million (H1 2021/22: £1.2 million; FY2021/22: £0.4 million) of which £nil relates to vested awards.

9) Taxation

Analysis of tax charge for the period

Factors affecting tax charge for the period

10) Earnings per share

Basic earnings per share for the six months to 31 December 2022 of 6.48 pence (H1 2021/22: 14.17 pence; FY2021/22: 13.42 pence) is calculated by dividing the profit after tax for the financial period attributable to equity holders of the parent of £42.7 million (H1 2021/22: £93.7 million; FY2021/22: £88.5 million) by the weighted average number of ordinary shares in issue during the period, excluding own shares.

Diluted earnings per share is calculated based on basic earnings per share adjusted for all dilutive potential ordinary shares. There is no difference between the profit for the year attributable to equity holders of the parent used in the basic and diluted earnings per share calculations.

Reconciliation of the weighted average number of shares used in calculating basic and diluted earnings per share is shown below.

11) Dividends

Dividends paid

In addition, the Group paid £2.1 million (H1 2021/22: £1.8 million; FY2021/22: £3.0 million) in dividends to non-controlling interests.

Dividends declared/proposed

The Board has approved an interim dividend for the six months to 31 December 2022 of 4.80 pence per share payable on 29 March 2023 to shareholders on the register on 3 March 2023.

12) Goodwill and intangible assets

* FX revaluation through reserves is a result of the retranslation of US dollar-denominated intangibles and goodwill.

Goodwill

The Group's goodwill balance relates to the acquisition of subsidiaries.

Goodwill acquired in a business combination is allocated to the cash-generating units that are expected to benefit from that business combination. It is the Group's judgement that the lowest level of cash-generating unit used to determine impairment is the investment management segment level. The Group has assessed that it consists of a single cash-generating unit for the purposes of monitoring and assessing goodwill for impairment. This reflects the Group's global operating model, based on a single operating platform, into which acquired businesses are fully integrated and from which acquisition-related synergies are expected to be realised.

During the period to 31 December 2022, no factors indicating potential impairment of goodwill were noted. Based on the calculation as at 31 December 2022 using a market share price of £2.39, the recoverable amount was in excess of the carrying value of goodwill and no impairment was implied. In addition, the sensitivity of the recoverable amount to a 10% change in the Company's market share price will not lead to any impairment. Therefore, no impairment loss has been recognised in the current or preceding periods.

Fund management contracts

Intangible assets comprise fund management contracts and contractually agreed share of carried interest recognised by the Group on business combinations. No factors were identified suggesting that fund management contracts intangible assets were impaired as at 31 December 2022. The remaining amortisation period for fund management contracts is two years.

13) Leases

The Group's property, plant and equipment include right-of-use assets recognised on office leases for which the Group is a lessee under operating lease arrangements. Information about leases is provided below.

Lease liabilities are presented in the interim condensed consolidated balance sheet as follows:

The carrying value of the Group's right-of-use assets, lease liabilities and the movement during the period are set out below.

Total cash outflow included within financing activities in the interim condensed consolidated cash flow statement in respect of principal and interest paid on lease liabilities during the period amounted to £1.3 million.

14) Fair value of financial instruments

The accounting policies relating to the estimation of fair values are consistent with those applied in the preparation of the Group's Annual Report and Accounts for the year ended 30 June 2022.

The Group has an established control framework with respect to the measurement of fair values. This framework includes committees that have overall responsibility for all significant fair value measurements. Each committee regularly reviews significant inputs and valuation adjustments. If third-party information is used to measure fair value, the team assesses and documents the evidence obtained from the third parties to support such valuations. There are no material differences between the carrying amounts of financial assets and liabilities and their fair values at the balance sheet date.

Fair value hierarchy

The Group measures fair values using the following fair value levels that reflect the significance of inputs used in making the measurements, based on the degree to which the fair value is observable:

Level 1: Valuation is based upon a quoted market price in an active market for an identical instrument. This fair value measure relates to the valuation of quoted and exchange traded equity and debt securities.

Level 2: Valuation techniques are based upon observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This fair value measure relates to the valuation of quoted equity securities in inactive markets or in interests in unlisted funds whose net asset values are referenced to the fair values of the listed or exchange traded securities held by those funds. Valuation techniques may include using a broker quote in an inactive market or an evaluated price based on a compilation of primarily observable market information utilising information readily available via external sources.

Level 3: Fair value measurements are derived from valuation techniques that include inputs not based on observable market data.

For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

The fair value hierarchy of financial instruments which are carried at fair value is summarised below:

The Group recognises transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. There were no transfers between level 1, level 2 and level 3 of the fair value hierarchy during the period.

Financial instruments not measured at fair value

Financial assets and liabilities that are not measured at fair value include cash and cash equivalents, trade and other receivables, and trade and other payables. The carrying value of financial assets and financial liabilities not measured at fair value is considered a reasonable approximation of fair value as at 31 December 2022, 31 December 2021 and 30 June 2022.

Fair value measurements using significant unobservable inputs (level 3)

The following table presents the changes in level 3 items for the period.

Valuation of level 3 financial assets recognised at fair value on a recurring basis using valuation techniques

Investments valued using valuation techniques include financial investments which, by their nature, do not have an externally quoted price based on regular trades, and financial investments for which markets are no longer active as a result of market conditions, e.g. market illiquidity. The valuation techniques used in the estimation of fair values are consistent with those applied in the preparation of the Group's Annual Report and Accounts for the year ended 30 June 2022.

The following tables show the valuation techniques and the significant unobservable inputs used to estimate the fair value of level 3 investments as at 31 December 2022 and 30 June 2022, and the associated sensitivity to changes in unobservable inputs to a reasonable alternative: