Polar Capital Regulatory News (POLR)

POLAR CAPITAL HOLDINGS plc

Group Audited Results for the year ended 31 March 2019

Highlights

• Assets under Management ('AUM') at 31 March 2019 £13.8bn (2018: £12.0bn)

• Core operating profit† excluding performance fees £42.2m (2018: £27.8m)

• Profit before share-based payments on preference shares† of £67.2m (2018: £46.4m)

• Pre-tax profit £64.1m (2018: £41.3m)

• Basic earnings per share 57.8p (2018: 36.4p) and adjusted diluted earnings per share† 51.5p (2018: 36.6p)

• Dividends for the year 33.0p per share (2018: 28.0p) including a second interim dividend of 25.0p (2018: 22.0p) per ordinary share to be paid on 26 July 2019 to shareholders on the register on 5 July 2019

• Shareholders' funds £109.7m (2018: £87.7m) including net cash of £111.7m (2018: £87.9m)

• In the final six months of the financial year we launched and seeded our Asian Stars and Global Absolute Return funds, bringing the total new fund launches in the year to five

• Current AUM as at 31 May 2019 £14.1bn

† The non-GAAP alternative performance measures shown here are described on the Alternative Performance Measures (APMs) page and reconciled to IFRS measures in the Financial Review

Gavin Rochussen, Chief Executive Officer, commented:

"The financial year to 31 March 2019 was a year of two distinct halves for the Company. The first six months to September 2018 was a period of rising markets accompanied by global demand for risk assets. The market correction in October, followed by a significant sell-off in December, resulted in redemptions globally of assets. Despite this volatility, our funds posted a record year for performance fees, the majority of which crystallise annually in December.

'Notwithstanding recent concerns about global economic growth and fragile sentiment for risk assets generally, with the diversity of our 12 specialist active teams we are confident that we will continue performing for our clients and that Polar Capital will continue to deliver for our shareholders."

Assets Under Management (AUM)

AUM split by Type

AUM split by Strategy

(in chronological order)

* AUM at 31 March 2019 comprised seed capital of £21m (2018: nil)

Chairman's Statement

The past year has been dominated from a macro perspective by the impact of ongoing US/China trade talks, whether the Federal Reserve will or will not hike interest rates and, closer to home, Brexit.

There is still great uncertainty on how these issues are going to play out as, while the US continues to openly threaten China with $250bn+ in tariffs, Presidents Trump and Xi have dates in their diaries to continue talks; the Federal Reserve has seemingly ruled out an interest rate hike in the short term; and, as I wrote last year: "We remain unclear on what the potential impact of Brexit might be".

As for the markets, we have experienced a volatile 12 months. Overall strong markets in our first half to 30th September 2018 were followed by the worst quarter since the global financial crisis, which in turn was followed in the last three months of our financial year to 31st March 2019 by the best quarter for nearly a decade.

Against this background we have seen our AUM rise during the course of the year from £12.0bn to £13.8bn, having peaked at £14.7bn in September 2018. Of this increase in AUM approximately 30% arose from net inflows with the balance from market movements. The performance of our various fund strategies was a little more varied than in the previous financial year, which is not wholly surprising in a year of such market volatility. However overall the majorityof our funds continued to outperform their benchmarks.

During the period we launched a number of new funds and one new strategy. The Emerging Market Stars Fund was the first launched by the team who joined the Group in July 2018 and was followed by the launch of the China Stars Fund and the Asian Stars Fund both run using the same investment philosophy. At the end of the year we also launched the Global Absolute Return Fund, run by our Convertibles team.

During the year we were pleased to be given awards for our UK Absolute Equity, Technology and Global Convertibles funds with Polar Capital picking up a management firm of the year award.

Results

The year saw a material increase in profitability, with core profits increasing by 52% and net performance fees increasing by 57%. Profit attributable to ordinary shareholders increased from £32.8m to £52.4m and adjusted diluted earnings per ordinary share, after allowing for share-based payments on preference shares and deferred remuneration costs, rose by 41% from 36.6p to 51.5p. Our Balance Sheet remains strong with net assets of £109.7m and net cash of £111.7m.

Dividend

As previously stated the Board expects in normal circumstances to pay an annual dividend within a range of 55% and 85% of adjusted total earnings and dependent on the scale of performance fees in the relevant year.

The second interim dividend to be paid will be 25p (2018: 22.0p) to be paid in July. Together with the first interim dividend of 8.0p paid in January 2019 the total dividend for the year amounts to 33p.

Management change

Alexander (Sandy) Black joined the Group as Chief Investment Officer on 1 January 2019. He is responsible for oversight of the Group's investment strategies, incorporating style and risk analysis, trading and ESG characteristics.

The executive management team now comprises Gavin Rochussen (CEO), John Mansell (COO and FD), Iain Evans (Head of Global Distribution) and Sandy Black (CIO).

Board changes

In July 2018 we announced the appointment of Alexa Coates and Quintin Price as non-executive Directors. Alexa has been appointed Chair of the Audit Committee. We welcome them both to the Board.

As reported in my statement last year Hugh Aldous and Tim Woolley both retired at the conclusion of the AGM in July 2018.

Michael Thomas retired in November 2018 having been a Director since 2008. We thank him for the contribution he has made as a non-executive Director and Chairman of the Remuneration Committee over many years. I am pleased to report that Win Robbins has been appointed the Chair of the Remuneration Committee.

Annual General Meeting

Once again our AGM will be held at our offices at 16 Palace Street, London, SW1E 5JD. The meeting will be on 31 July 2019 commencing at 2:30pm. Although we do not give a trading update at the meeting, I encourage shareholders to attend so that they can meet the Directors after the meeting.

Details of the AGM, including an explanation of the proposed resolutions, are contained in the separate Notice of Meeting.

Outlook

Despite the macroeconomic and geopolitical challenges that appear to have become a constant backdrop over the recent past, we have started the new financial year with good momentum in terms of both fund performance and fund flows.

Whilst market volatility is expected to remain as political tensions at home and abroad continue, we believe that with a diverse range of actively managed, specialist fund strategies we are well positioned for the future.

Tom Bartlam

Chairman

21 June 2019 

Chief Executive's Report

Market background

A number of factors combined to make 2018 a tough year for equity markets. US tax cuts led to strong economic conditions and healthy corporate earnings growth following the 2016 presidential election, but the hangover began in 2018. The unpredictable path of trade talks between China and the US, economic weakness in China, and slowing business and consumer activity in the UK led to a more uncertain investment environment just as the US Federal Reserve began contemplating further interest rate rises. The decade of quantitative easing had ended and uncertainty about the pace of quantitative tightening was weighing on markets as sentiment turned.

Emerging markets were the first to suffer, followed by the UK and Europe, with US equities joining the sell-off in the final quarter of 2018. Many of the widely owned technology companies which had led the market higher were hit particularly hard. December 2018 was the worst December for global equity markets since 1988 and contributed to the worst year for equities since the 2008 financial crisis. Sector leadership shifted dramatically from technology to utilities, indicating rising risk aversion. Investors sold equities indiscriminately, leading to very oversold conditions by year end.

Inflation expectations fell in the second half of 2018, in part due to oil price weakness, but also because lower unemployment, particularly in the US, did not lead to sharp wage rises. These factors contributed to a rally in government bonds yet despite this and concerns about slowing economic growth, most bond yield curves have not inverted.

The storm abated somewhat in the first quarter of 2019, the final quarter of Polar Capital's financial year. The sharp equity market falls of the fourth quarter of 2018 almost entirely reversed while the first quarter of 2019 was the second strongest on record for global equities (+12%) and the best quarter for the US market since the third quarter in 2009. The Federal Reserve had a change of view, moving from a bias towards raising interest rates to an easier monetary policy stance, and the high level of pessimism and risk version in the final weeks of 2018 proved to be a low point from which investor expectations became more positive. The Chinese equity market's 25% rise during this period was eye-catching, reflecting the authorities' attempts to stimulate the economy again via tax cuts, prompting domestic investor interest in locally quoted shares, while international investors have been buying Hong Kong and New York-listed Chinese companies.

Technology has resumed sector leadership while financials was the weakest sector in the first three months of 2019, depressed by the impact on future earnings of lower interest rates and a flatter yield curve. European banks also had to contend with persistently low profitability and the ramifications of money laundering accusations in the Baltics. Corporate earnings revisions, which were in persistent decline during 2018, have begun to recover across most sectors.

While there are grounds for investor optimism based on Chinese stimulus, US productivity growth and a healthy corporate sector, decision-making for investors in the UK equity market continues to be made more difficult by Brexit uncertainty, which in turn affects companies' investment intentions and hiring plans. Sterling has at least found a degree of equilibrium, with few investors willing to take a view either way due to the unpredictable range of outcomes.

A year of two halves for Polar Capital

The financial year to 31 March 2019 was a year of two distinct halves for the Company. The first six months to September 2018 was a period of rising markets accompanied by global demand for risk assets. As reported at the half-year, Polar Capital benefited from rising markets and closed the half year with record net inflows and posted its highest AUM since the Group was founded in 2001.

The market correction in October, followed by a significant sell-off in December, resulted in redemptions globally of assets. Polar Capital was not immune to this and suffered a £2bn decline in AUM during the quarter as a consequence of net outflows and market declines. Despite this volatility, our funds posted a record year for performance fees, the majority of which crystallise annually in December. The Polar Capital share price, alongside all our publicly quoted peers, declined to levels of a year earlier and reflected a deterioration in sentiment towards quoted asset managers as PE multiples for the sector contracted.

In the following quarter, the fourth and final of our financial year, we benefited from the sharp recovery in markets with reduced outflows in each successive month in that quarter and we have experienced positive net inflows in the period subsequent to our year-end. Our total AUM recovered by £1.1bn in the last quarter to close the financial year at £13.8bn, an increase of £1.8bn over the full financial year.

Fund performance and fund oversight

Testifying to the quality and experience of our active fund managers, strong culture and robust fund oversight, our funds performed well throughout the more volatile period and continued to produce pleasing returns for our clients.

Fund performance this financial year reflects an investment environment marked by significant changes in equity market direction and investor attitude. Polar Capital's established Healthcare and Technology teams managed to weather the changes in style preference and investor risk appetite, with both strategies outperforming their benchmarks. A more risk averse backdrop also suited the Emerging Market Income and European ex-UK Income strategies, both of which performed well over the year. An increase in volatility created favourable conditions for the Convertibles team too.

Other strategies had a tougher time. The North American strategy underperformed, as did UK Value Opportunities, the latter in part due to sterling weakness and Brexit uncertainty hampering the smaller, economically sensitive businesses where the team often finds value. The Emerging Market Stars strategy, launched in July 2018, underperformed in the sharp emerging markets sell-off last year but began to post better performance numbers in the early months of 2019.

The net performance fees earned by our funds in the 2018 calendar year was £24m, compared to £15.3m in the previous year.

As at 30 April 2019, the Lipper percentile rankings for our UCITS fund range showed 99% of the funds in the top quartile against peer group since inception, with 93% and 77% in the top quartile over five and three years respectively.

Our actively managed strategies show high 'active share' characteristics. The Technology fund's active share (aggregate difference between portfolio weights and benchmark weights in each security) of 60%, the lowest of all our strategies, reflects the dominance of the mega cap technology names in its specialist sector benchmark.

The majority of our funds demonstrate active share of between 70% and 90%.

Demonstrating the benefits of active investing, the Polar Capital Global Insurance Fund celebrated its 20th year since inception with cumulative outperformance to 30 April 2019 of 149% (net of fees) versus the benchmark.

Polar Capital focuses on investment performance and its oversight process monitors underlying fund liquidity on a daily basis. Fund liquidity and concentration are key determinants of capacity. Capacity management seeks to enhance and maintain performance through the cycles. Total cumulative fund liquidity across all Polar funds as at 31 May 2019 indicates that 80% of fund positions could be liquidated within 10 days. Illiquid holdings across all our funds comprise 8 positions and represent less than 0.2% of total Group AUM at 31 May 2019.

There has been an increasing focus by our clients on shareholder engagement and sustainability within our underlying portfolio companies. During the year we have developed our approach such that ESG assessment is embedded and integral to each of our team's investment processes. While we do not believe in negative screening, we rank each of our funds on their ESG credentials and each manager is expected to ensure underlying portfolio companies are improving their ESG credentials on an ongoing basis. Polar Capital has signed up to the United Nations Principles of Responsible Investing (UNPRI) and meets all the criteria required by the UNPRI Charter.

AUM and fund flows

AUM increased by £1.8bn from £12bn to £13.8bn with £0.5bn of net inflows and £1.3bn from market uplift and performance. AUM increased by 15% over the year. The average AUM for the year was £13.2bn compared to £10.7bn the previous year which represents a 23% increase and is the key driver of increased management fee revenue.

Net inflows were positive across 14 of our 23 funds with 9 funds registering negative net flows in addition to one fund which was closed during the year. The December quarter sell-off impacted the North American, Global Insurance, Technology and Japan strategies the most as investors reduced risk following asset allocation changes.

In the twelve months to 31 March 2019, the Technology Fund dominated the net inflows followed by the UK Value Fund, Healthcare Fund and the Global Convertible Bond Fund. The Japan Fund continued to suffer redemptions following a challenging performance period, with net outflows for our Global Financials team, the North American Fund and the UK Absolute Return Fund.

Results

† The non-GAAP alternative performance measures shown here are described on the APMs page and reconciled to IFRS measure in the Financial Review.

Net management fees, after commission and rebates payable, increased by 25% from £90.3m to £113.5m as result of average AUM increasing by 23% to £13.2bn from £10.7bn. Net revenue margin remained constant over the two years.

Core profit (excluding performance fees and financial income) for the year was £42.2m, an increase of 52% on the previous year's £27.8m.

Net performance fee profit amounted to £24m (2018: £15.3m), a record year for the Company. Not only was this a marked increase on the previous year, but performance fees were earned by an increased number of our funds notwithstanding the period of increased market volatility in the last quarter of calendar 2018.

The decline in other income from £3.3m in 2018 to £1.0m was a consequence of abnormally high other income in 2018 which arose from gains in seed capital in funds not repeated in 2019.

During the year the Healthcare team elected to crystallise their preference shares which allows the issue of up to 4,060,074 ordinary shares over a three year period and which can be adjusted downwards if team profitability declines. The crystallisation also results in an enhancement to EPS of 3p.

Net profit after tax attributable to shareholders was £52.4m, an increase of 60% on the £32.8m reported in the prior year.

The adjusted diluted earnings per share, adjusting for share-based payments on preference shares and deferred remuneration costs, rose by 41% to 51.5p from 36.6p in the prior year.

Regulatory backdrop

MiFID II which governs how we target investors, trade on their behalf and how those trades are monitored became effective on 3 January 2018.

Following the first full year of its application we have absorbed the impact of additional research costs where these are borne by the Group rather than the funds.

GDPR which determines how we communicate with clients as well as use and store their data became effective on 25 May 2018 and the Group was fully prepared and compliant by the implementation date. One year on, Polar Capital continues to review controls, monitor, consent, notices and undertakings as well as provide staff with reminders and training on an ongoing basis to ensure continual compliance.

We have also carefully considered the results of the FCA Asset Management Market Study on 5 April 2018 and we are confident that we meet all key recommendations. With regards to the principal recommendation, due to our philosophy of active fundamental research driven processes, we believe we offer good value for money to our clients.

The Senior Managers and Certification Regime (SMCR) is part of the UK regulator's drive to improve culture, governance and accountability within financial services firms. It aims to deter misconduct by improving individual accountability and awareness of conduct issues across firms. In particular, it aims to achieve three different things: first, to focus on accountability for misdeeds on a narrow number of individuals at or near the top of the hierarchies of FCA regulated financial institutions; second to encourage these senior individuals to take greater responsibility for their direct actions, as well as indirect behaviour that contributes to a laissez-faire culture; and last, to make it easier for regulators, auditors and bank employees to hold specific individuals to account for malfeasance. Initially only applicable to a specific group of financial institutions (including banks), from 9 December 2019, SMCR will be applicable to almost all firms regulated by the FCA as well as to non-UK firms with permission to carry out regulated activities in the UK. We are prepared for the upcoming application of SMCR and do not expect a material effect on the operations, current responsibilities and the effectiveness of our key managers.

The Packaged Retail and Insurance-based Investment Products (PRIIPs) required the preparation of a Key Investor Document (KID) for any product determined to be a PRIIP and for this to be 'made available' to retail investors in the EU. The obligation falls on manufacturers of the PRIIP which, in a funds context, is the manager behind the fund. The manufacturer will also have an obligation to publish the KIDs on its website to ensure they are widely available. Polar Capital Investment Trust KIDs were available by the 1 January 2018 deadline while the transition period to produce KIDs for Polar Capital UCITS was extended until December 2021.

Given the significant additional regulation coming into effect as well as contingency planning for Brexit, we have increased the capacity within our legal and compliance team to ensure we meet all new regulatory requirements to cope with a growing business which requires increased ongoing compliance monitoring.

Brexit

While there remains uncertainty as to the final outcome of Brexit, we have taken actions to ensure we are well placed to service our clients in the EU irrespective of the final outcome of the negotiations. We have established Polar Capital (Europe) SAS (PCE) in Paris which has regulatory approval from the French regulator, the Autorité des Marchés Financiers (AMF). Key oversight, risk management and European sales personnel are part of the French regulated entity. With clients accounting for approximately 30% of our AUM based in Europe, PCE enables us to continue to passport our funds into the EU for marketing and client servicing purposes.

Approximately 70% of our AUM is held by UK based clients of which approximately a quarter is invested in our three Investment Trusts - The Polar Capital Technology Trust, The Polar Capital Global Healthcare Trust and The Polar Capital Financials Trust - where there is no impact from Brexit. Moreover, the management and marketing of our Cayman domiciled alternative funds remain unaffected by Brexit.

Our Dublin domiciled UCITS funds make up approximately 82% of our total AUM. Earlier this year the FCA agreed Memoranda of Understanding with ESMA and EU regulators which cover cooperation and exchange of information which means we will continue to manage the UCITS funds from our current office locations. The Dublin domiciled UCITS funds were also registered with the FCA under the Temporary Permissions Regime earlier this year which will allow Polar Capital to continue to market the UCITS funds in to the UK and provide UK investors continued access to investment in the funds for a period of three years after the UK's withdrawal from the EU.

Strategy

Our strategy remains to achieve growth through diversification. Given our focus on capacity management in order to preserve the performance of existing fund strategies, it is an imperative to continue to add complementary teams and extend existing team capability to enhance capacity. The key emphasis is to grow by broadening our fund strategies in terms of style and process while also focusing on diversifying the client base geographically and by client segment. We have made further progress in preparing the infrastructure to offer an institutional offering globally.

The Emerging Market Stars team that joined last year has settled well and we see encouraging signs of client interest in their core offering. A set of four funds were seeded and launched during the year providing additional capacity in an asset class where Polar Capital is under represented. Three UCITS funds included the Emerging Markets Stars Fund, Asia Stars Fund, China Stars Fund and a Cayman absolute return China Mercury Fund have performed well. The Emerging Markets Star fund is performing within the first quartile of the Lipper peer universe since inception to 31 May 2019.

We launched the Global Absolute Return Fund (UCITS) managed by the Convertibles team in January this year and this has had an encouraging start.

Subsequent to year end, succession within our Japan team has been implemented which will enable the team to focus on its Japan value strategy which has had compelling performance.

Diversification of our distribution capability regionally has progressed with the appointment of a senior experienced resource to cover the Nordic region. We have also recently appointed a senior experienced executive as Managing Director, North America and will open a modest office in New York to focus on developing relationships and new channels to market in North America.

Outlook

Notwithstanding recent concerns about global economic growth and fragile sentiment for risk assets generally, with the diversity of our 12 specialist active teams we are confident that that we will continue performing for our clients and that Polar Capital will continue to deliver for our shareholders.

Gavin Rochussen

Chief Executive

21 June 2019 

Financial Review

Introduction

The Group has had a strong year with an added gloss provided by the delivery of record performance fee profits, surpassing last year's figure that, at the time, was itself also a record.

 Results for the year - Revenues

The management fees earned by the Group are conventionally a function of the quantum of AUM managed by the Group and the fee rate charged.

The 25% increase in the Group's net management fees from £90.3m in 2018 to £113.5m this year is simply a function of the increase in the Group's AUM.

The excellent relative performance of the Group's products has resulted in a significant uplift in performance fees earned and has produced the highest performance fee figure in the Group's 18 year history.

Results for the year - Costs

1. Including share awards under deferment plan of £1.5m (2018: £0.3m).

2. Share-based payments on preference shares, Group share awards and LTIPs.

3. Including share awards under deferment plan of £0.8m (2018: £0.8m)

Total operating costs rose to £101.7m from £87.9m last year.

The increase in salaries, bonuses and other staff costs was a product of the increase in head count in the Group (calendar year end staff numbers increased from 122 to 135) as well as an increase in the discretionary bonuses paid following the improved performance of the Group.

The increase in core distributions was driven by the rise in management fees and the core profits of the Group; notwithstanding the interest forfeited by the healthcare team following their decision to crystallise their preference shares.

The national insurance cost of share options reflects both the quantum of share options and their sensitivity to the Company's share price. The reduction in the provision in 2019 was the result of the reduced quantum of options following exercises.

The increase in other operating costs is due principally to a full year's MiFID II research costs (the costs commenced from 1 January 2018).

The rise in performance fee interests to £27.7m from £20.3m last year is directly correlated to the increase in performance fee revenues.

Share-based payments

The make-up of costs of share-based payments is as follows:

Results for the year - Profits

1. Including cost of LTIP, Group share awards and deferred share awards to 31 March 2019 of £4.9m (2018: £2.8m).

2. Including cost of deferred share awards of £0.8m (2018: £0.8m).

The headline profit before tax for the year has increased to £64.1m from last year's £41.3m.

IFRS requires that deferred amounts be accounted for over the period they vest and not the year in which the awards are made. This matter has the consequence of not matching some costs against the revenues and profits that cause and prompt the underlying charge. The non IFRS adjusted EPS number adjusts for this as well as stripping out the share-based payment impact of the Group's preference shares.

The Group believes that the best measure of the Group's profitability is the profit before share-based payments on preference shares and tax. The reason for excluding the share-based payments charge on preference shares is that they deliver, when they vest, an uplift to EPS and are not a detractor. On this basis the Group has delivered a rise in profits to £67.2m compared to last year's £46.4m. The analysis of the different components of profits shows that:

· Core operating profits

The increase in profits reflects the rise in management fee revenues driven by the increase in average value of assets managed over the year.

· Performance fee profits

Stronger performance across the product range compared to last year has resulted in the significant improvement in performance fee profits.

· Interest and similar income

The reduced contribution is a product of the lower return from the portfolio of seed investments held on the balance sheet.

Earnings per share

The effect that the charge for share-based payments has on the EPS figures of the Group is as follows:

Preference shares

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

In the year to 31 March 2019 (March 2018: nil) there was a single conversion of preference shares into Polar Capital Holdings equity.

As at 31 March 2019 five sets of preference shares have the ability to call for a conversion. The call has to be made on or before 30 November 2019 if any conversion is to take place with effect from 31 March 2019.

Balance sheet and cash

At the year end the cash balances of the Group were £111.7m (2018: £87.9m). The increase reflects the Group's increased profitability, partially counter balanced by an increase over the year in the Group's portfolio of seed investments, driven primarily by the seeding of the EMStars new products.

At the balance sheet date the Group held £35.9m of investments in its funds (2018: £18.4m).

Capital management

The Group believes in retaining a strong balance sheet. The capital that is retained in the business is used to either seed new investment products, pay dividends or buy back its shares to reduce the dilutive effects of LTIP and option awards. As at March 2019 £35.9m of the Group's balance sheet was invested to seed fledgling funds and during the year the Group spent £10m to buy back shares of the Company.

The Group's dividend policy is to pay an annual dividend within a range of 55% and 85% of adjusted total earnings, dependent on the scale of performance fees in the relevant year.

Business risk

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

Going concern

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

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

John Mansell

Finance Director

21 June 2019

Alternate Performance Measures (APMs)

The Group uses the following Non-GAAP APMs:

Core operating profit

Definition: Profit before performance fee profits, other income and tax.

Reconciliation: Financial Review.

Reason for use: to present users of the accounts with a clear view of what the Group considers to be the results of its underlying operations before items which may either be volatile, non-recurring or non-cash in nature and taxation.

Performance fee profit

Definition: Gross performance fee income less performance fee interests due to staff.

Reconciliation: Financial Review.

Reason for use: to present users of the accounts with a clear view of the net amount of performance fee earned by the Group after accounting for staff remuneration payable that is directly attributable to performance fee revenues generated.

Adjusted diluted earnings per share and adjusted total earnings

Definition: Profit after tax but (a) excluding cost of share-based payments on preference shares and (b) allowing for the net cost of deferred staff remuneration, and in the case of adjusted diluted earnings per share, divided by the weighted average number of ordinary shares.

Reconciliation: Note 6.

Reason for use: to present users of the accounts with a clear view of what the Group considers to be the distributions from its underlying operations. The Group believes that (a) as the preference share awards have been designed to be earnings enhancing to shareholders (See page 20 of the annual report) adjusting for this non-cash item provides a better understanding of the financial performance of the Group and (b) comparing staff remuneration and profits generated in the same time period (rather than deferring remuneration over a longer vesting period) allows users of the accounts to gain a better understanding of the Group's results and their comparability period on period.

Net management fee

Definition: Gross management fee income less commissions and fees payable.

Reconciliation: Financial Review.

Reason for use: to present a subtotal of fee revenue after accounting for items without which some of the revenue would not have been earned.

Core distributions

Definition: Variable compensation payable to investment teams.

Reconciliation: Financial Review.

Reason for use: to present users of the accounts with additional information not required for disclosure by accounting standards, thereby assisting users of the accounts in understanding key components of variable costs.

Profit before share-based payments on preference shares

Definition: profit before tax but excluding cost of share-based payments on preference shares.

Reconciliation: Financial Review.

Reason for use: The Group believes that as preference share awards have been designed to be earnings enhancing to shareholders adjusting for this non-cash item provides a better understanding of the financial performance of the Group. 

Consolidated Statement of Profit or Loss For the year ended 31 March 2019

Consolidated Statement of Comprehensive Income For the year ended 31 March 2019

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

Consolidated Balance Sheet as at 31 March 2019

Consolidated Statement of Changes in Equity For the year ended 31 March 2019

Consolidated Cash Flow Statement For the year ended 31 March 2019

Selected notes to the Financial Statements for the year ended 31 March 2019

1. General Information, Basis of Preparation and Accounting Policies

Corporate information

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

Group information

The consolidated financial statements of the Group include the operating subsidiaries listed below. All operating subsidiaries, other than Polar Capital Partners Limited, were indirectly held. All operating subsidiaries are wholly owned, except for Polar Capital LLP in which Polar Capital Partners Limited has contributed 99.5% of the capital.

The consolidated financial statements of the Group also include the following seed capital investments which were judged to be subsidiaries or associates of the Group as at 31 March 2019:

Basis of preparation

The consolidated Group financial statements have been prepared on a going concern basis in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and the provisions of the Companies Act 2006 applicable to companies reporting under IFRS.

The consolidated financial statements have been prepared under the historical cost convention, modified by the measurement at fair value of certain financial assets and liabilities and derivative financial instruments. The consolidated financial statements are presented in Sterling and all values are rounded to the nearest thousand (£'000), except when otherwise stated.

Going concern

The Group has a robust financial resources position, access to cashflow from ongoing investment management contracts and the Directors believe that the Group is well placed to manage its business risks. The Directors also have a reasonable expectation that the Group has adequate resources to continue operating for a period of at least 12 months from the balance sheet date. Therefore, the Directors continue to adopt the going concern basis of accounting in preparing the consolidated financial statements.

Basis of consolidation

The consolidated financial statements of the Group comprise the financial statements of the Company and its subsidiaries as at 31 March 2019. Subsidiaries are those entities over which the Group has control. The Group controls an investee if, and only if, the Group has:

• Power over the investee;

• Exposure, or rights, to variable returns from its involvement with the investee;

• The ability to use its power over the investee to affect returns.

The Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including the purpose and design of an investee, relevant activities, substantive and protective rights, voting rights and potential voting rights.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent company and where necessary, adjustments are made to the financial statements of the subsidiaries to bring their accounting policies in line with those of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

When the Group loses control over a subsidiary, it derecognises the related assets, liabilities, third-party interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

Seed capital investments in funds that the Group manages are accounted for as subsidiaries, associates or financial assets at fair value through profit or loss (FVTPL) depending on the holdings of the Group, on the level of influence and control that the Group is judged to have and whether the Group assesses it is acting as an agent or principal for its holdings in the seed capital investments. There is no fixed minimum percentage at which the Group consolidates, and each exposure is reviewed individually.

Where the Group concludes it is acting as a principal the entity is consolidated. This assessment is based on the Group's total exposure. This incorporates direct holdings, income earned from management and performance fees and the assessed strength of third-party kick-out rights.

The Group concludes that it acts as an agent when the power it has over the fund is deemed to be exercised for the benefit of third-party investors.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Subsidiaries are fully consolidated from the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases.

Where external investors hold redeemable shares in funds controlled by the Group, the portion of profit or loss and net assets held by these third-party interests is included within other income in the consolidated statement of profit or loss and as financial liabilities at FVTPL in the consolidated balance sheet respectively.

Net cashflows on initial consolidation or deconsolidation are presented as investing activities within the consolidated cashflow statement. Cashflows from third-party interests into consolidated funds are presented as financing activities.

Investment securities

Investment securities represent securities, other than derivatives, held by consolidated funds. These securities are designated as FVTPL and are measured at fair value with gains and losses recognised through the consolidated statement of profit or loss.

Financial liabilities at fair value through profit or loss

Financial liabilities at FVTPL are carried at fair value, with gains and losses recognised in the consolidated income statement within other income in the period in which they arise. Financial liabilities at FVTPL relate to third-party interests in consolidated funds which are designated as at FVTPL.

Revenue recognition

Revenue from contracts with customers

Revenue from contracts with customers represents fees receivable, less commissions payable and excluding value added tax, for discretionary investment management services during the period.

Management fees are based on a percentage of assets under management either per calendar month or quarter as set out in the relevant investment management agreements (IMA).

Management fees relate specifically to the Group's provision of investment management services for each relevant time period and therefore such services as satisfied over time because either the customer simultaneously receives and consumes the benefits provided by the fund manager as the service is provided or, the fund manager's performance enhances the assets that the fund controls.

Research fees relate to bespoke research provided in respect of funds managed and in accordance with the relevant IMA.

Performance fees are variable consideration based on a percentage of investment performance achieved relative to predefined benchmarks as set out in the relevant IMA. Performance fees by their nature are highly susceptible to volatility until they are crystallised and are no longer subject to claw back. This is usually at the end of the performance period of a fund when the performance fee calculation can be confirmed with certainty. Therefore, performance fees are recognised at the point in time when they are crystallised.

Commissions and fees payable

Commissions and fees payable to third parties are in respect of management of investment management contracts. Commissions, distribution and research fees payable to third parties are recognised over the period for which the service is provided.

New standards adopted by the Group

IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers were adopted by the Group on 1 April 2018. Neither standard has had a material impact on the Group's financial statements.

Standards and amendments not yet effective

The following new standards and amendments to existing standards have been published and are mandatory for the Group's accounting periods beginning after 1 January 2019 or later periods, but the Group has decided not to early adopt them:

IFRS 16 Leases

IFRS 16 replaces IAS 17 Leases and provides a single lease accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less, or the underlying asset is of low value.

The adoption of IFRS 16 is likely to have a significant impact on the Group's financial statements as total assets and liabilities will increase because of the requirement to recognise both the right-of-use (ROU) asset and the related lease liability, which represents contractual payments to be made under lease obligations.

The ROU asset and lease liability will be calculated based on the expected payments, requiring an assessment as to the likely effect of renewal options, and are discounted using an appropriate discount rate for the Group. The ROU asset will be capitalised and depreciated on a straight line basis over the expected life of the lease. The lease liability will be unwound as the payments are made with an interest charge being recognised within finance costs using an effective interest model.

The Group intends to adopt the modified retrospective approach allowed by IFRS 16 with the cumulative effect on initial application of the standard being recognised as an adjustment to the opening reserves at 1 April 2019 of £0.4m. It is expected that on initial application, the adoption of IFRS 16 will increase the Group's assets by £5.8m and liabilities by £6.2m. An impact to the income statement arises due to the front loading of the finance charge, with a greater charge in the initial years until it starts to reduce in later years.

2. Revenue 

Analysis of income by type of fees

Net gains and losses on forward currency contracts used to hedge management fees derived from non-Sterling based AUM are included within revenue. This presentation better reflects the substance of these transactions and provides more relevant information about the Group's revenue.

Geographical analysis of income (based on the residency of source)

3. Operating costs

a) Operating costs include the following significant items:

b) Auditors' remuneration:

4. Dividends paid and proposed

Dividends on ordinary shares declared and paid during the year:

The Board has declared a second interim dividend of 25.0p (2018: 22.0p) to be paid in July 2019.

Together with the first interim dividend of 8.0p paid in January 2019 the total dividend for the year amounts to 33.0p (2018: 28.0p).

5. Share-based payments

A summary of the charge to the income statement for each share-based payment arrangement is as follows:

Certain employees of the Group and partners of Polar Capital LLP hold Manager Preference Shares or Manager Team Member Preference Shares (together 'Preference Shares') in Polar Capital Partners Limited, a group company.

The preference shares are designed to incentivise and retain the Group's fund management teams. These shares provide each manager with an economic interest in the funds that they run and ultimately enable the manager, at their option and at a future date, to convert their interest in the revenues generated from their funds to a value that may (at the discretion of the parent undertaking, Polar Capital Holdings plc) be satisfied by the issue of ordinary shares in Polar Capital Holdings plc. Such conversion takes place according to a pre-defined conversion formula that considers the relative contribution of the manager to the Group as a whole. The equity is awarded in return for the forfeiture of a manager's current core economic interest and is issued over three years from the date of conversion.

In the year to 31 March 2019 there was one new conversion of preference shares into Polar Capital Holdings equity (2018: nil).

The initial conversion calculation is made in relation to the crystallisation period ended 31 March 2018 and results in an initial crystallisation value equivalent to the issue of up to 4,060,074 new ordinary shares. This calculation is repeated at each of the first, second and third anniversaries of the crystallisation event date, 31 March 2018, based on the profits of the business unit in the 12 months ended on the respective anniversary. If the result of the re-calculation provides for a smaller share consideration, then the shares issued to the owners of the preference shares are adjusted accordingly. The effect of such a re-calculation is to cap the shares issued on conversion to 4,060,074 and allow the Group to adjust the remaining number of unissued shares downwards in case of a deterioration in performance of the relevant investment team post the crystallisation event date of 31 March 2018.

At 31 March 2019 five sets of preference shares (2018: three sets) have the right to call for conversion.

The following tables illustrate the number of, and movements in, the estimated number of ordinary shares to be issued.

Estimated number of ordinary shares to be issued on conversion of preference shares:

Number of ordinary shares to be issued against converted preference shares:

1. Of the 3,654,068 total shares outstanding at 31 March 2019, 1,218,022 shares were issued on 26 April 2019.

6. Earnings per Share

A reconciliation of the figures used in calculating the basic, diluted and adjusted earnings per share (EPS) figures is as follows:

7. Financial Instruments

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotation (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, such as forward exchange contracts, the fair value is determined using appropriate valuation techniques that take into account the terms and conditions of the contracts and utilise observable market data, such as spot and forward rates, as inputs.

For financial instruments held at 31 March 2019 and 2018 there were no material differences between the carrying value and the fair value.

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

At the end of both the current as well as the comparative period, all fair value through profit or loss financial instruments held by the Group were Level 1 and all open forward foreign exchange contracts were Level 2. The open forward foreign exchange contracts are held at fair value using valuation techniques that incorporate foreign exchange spot and forward rates. The carrying values of the Group's financial instruments are presented on the face of the balance sheet.

During the reporting period there were no transfers between levels in fair value measurements. There are no level 3 financial instruments.

8. Notes to the Cash Flow Statement

A reconciliation of profit before tax to cash generated from operations is as follows:

9. Related Party Transactions

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

B J D Ashford-Russell was a member of Polar Capital LLP and a director of the Polar Capital Technology Trust plc (the Trust) until 6 September 2018. The partnership is the appointed investment manager of the Trust. The total fees received by the Group as investment manager of the Trust during the period to 6 September 2018 were £7,289,529 (2018: £12,925,283). The amounts receivable at period end in this respect were £nil (2018: £2,385,349).

10. Status of results announcement

The Board of Directors approved this results announcement on 21 June 2019. Whilst the financial information included in this announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") as endorsed by the European Union, this announcement does not itself contain sufficient information to comply with all the disclosure requirements of IFRS and does not constitute statutory accounts of the Group for the years ended 31 March 2019 or 31 March 2018.

The financial information has been extracted from the statutory accounts of the Group for the years ended 31 March 2019 and 31 March 2018. The auditors reported on those accounts; their reports were unqualified and did not contain a statement under either Section 498 (2) or Section 498 (3) of the Companies Act 2006 and did not include references to any matters to which the auditor drew attention by way of emphasis.

The statutory accounts for the year ended 31 March 2018 have been delivered to the Registrar of Companies and those for the year ended 31 March 2019 will be delivered to the Registrar of Companies in due course.

Directors

T H Bartlam Non-executive Chairman

G M Rochussen Chief Executive

J B Mansell Chief Operating Officer, Finance Director

B J D Ashford-Russell Non-executive Director

J M B Cayzer-Colvin Non-executive Director

A J Coates Non-executive Director, Chair of Audit Committee

Q R S Price Non-executive Director

W E Robbins Non-executive Director, Chair of Remuneration Committee

Company No. 4235369

Registered Office

16 Palace Street

London, SW1E 5JD

Tel: 020 7227 2700

Group Company Secretary

Neil Taylor

Copies of Report and Accounts

The full annual report and accounts will be posted to shareholders in June 2019 and copies will be available thereafter from the Company Secretary at the Company's Registered Office, 16 Palace Street, London SW1E 5JD (020 7227 2700) or from the Company's website at www.polarcapital.co.uk

Annual General Meeting

The Annual General Meeting will be held at 2:30pm on 31 July 2019 at the offices of the Company at 16 Palace Street, London SW1E 5JD.

Forward looking statements

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

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

Neither the contents of the Company's website nor the contents of any website accessible from the hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this announcement.