Polar Capital Regulatory News (POLR)

11 Dec 2009 07:00



11 December 2009 

POLAR CAPITAL HOLDINGS plc ("Polar Capital" or "the Company")

Interim results for the six months ended 30 September 2009

Financial Highlights

Assets under management ("AUM") at 30 September 2009 up 27% at US$1.9bn compared to US$1.5bn at 30 March 2009 (30 September 2008: US$2.9bn)

Loss before tax and share-based payments of £0.4m (30 September 2008: profit £1.5m)

Basic loss per share of 0.62p (30 September 2008: earnings per share of 0.59p) and adjusted* diluted loss per share of 0.34p (30 September 2008: earnings per share of 1.25p)  * Adjusted to exclude cost of share-based payments

First interim dividend per ordinary share of 1.0p declared (2008: 1.0p) to be paid in January 2010

Well capitalised, with a strong balance sheet comprising cash of £28.1m of and £9.3m of investments

Current AUM

Current AUM as at 30 November 2009 up 5.2% from 30 September 2009 to $2.0bn

Tim Woolley, Chief Executive Officer, commenting on the outlook:

"Our excellent investment performance together with our robust operational platform and our strong financial position gives me cause for cautious optimism as I look ahead to the second half of the fiscal year and beyond into 2010.

The performance of our funds should continue to attract inflows and we are also positioned to attract further investment talent in the year ahead allowing us to expand our product offering to our clients, while also developing and diversifying our business. Our distribution and client service capability will support this growth and we look forward to carefully expanding these areas as we bring in additional teams.

The external environment no doubt will continue to throw up challenges but I am confident, given the experience of the last eighteen months, that we are well placed to meet those challenges."

  About Polar Capital

Polar Capital Holdings plc is a research driven investment management company providing a highly entrepreneurial environment for outstanding portfolio managers within a structure that offers a level of marketing, administrative and operational support normally found in much larger organisations.

Our objective is to deliver strong, sustainable earnings and dividend growth by building a highly diversified family of long-only, long-bias, equity long/short and other fundamentally driven hedge fund strategies managed under the Polar Capital brand.

Today Polar Capital has a staff of 47 of whom 23 are investment professionals managing ten funds, six managed accounts and one advisory relationships. These funds, which are aimed at institutional and professional investors, have combined assets under management as at 30 September 2009 of US$1.9bn.

Assets by fund / strategy 

*Analysis excludes single UD$3m sub-advisory US equities account as at 30 September 2009 (March 2009: UD$4m; September 2008: US$7m)

Analysis of changes in asset types for the six months to 30 September 2009

Analysis of AUM by business unit and type of funds as at 30 September 2009

  Chief Executive's statement

We are pleased to report a recovery in Polar Capital's Assets Under Management (AUM) which increased by 27% over the period from US$1.5bn to US$1.9bn.

At the time of our 31 March 2009 results we indicated that the industry was showing some early signs of stability and we were hopeful of a recovery over the balance of the year. Equity markets have indeed recovered over the last six months, even more strongly than we had expected. This has benefited our long only funds and the overall improvement in markets has also enhanced the outlook for many of our clients and this has resulted in a significant improvement in fund flows over recent months.

Investment performance

Following on from an excellent 2008 most of our funds have continued to deliver a strong performance this year. On the long only side it is worth highlighting the excellent performance of our award winning Japanese team, where once again they are well ahead of their benchmark. The Technology products have also posted impressive results this year and the UK team are again delivering strong results on their UK UCITS III product.

On the hedge fund side we have seen another period of impressive performance from our European team. Their 'flagship" Forager Fund is enjoying a particularly strong year and we are seeing good inflows. The team's more concentrated Conviction Fund, which focuses on larger capitalised European companies, has delivered steady results year to date following an exceptional performance in 2008. We are optimistic of gaining greater traction with clients for this fund over the remainder of the fiscal year.

While the performance of the Discovery Fund has been lacklustre after a period of outperformance, we remain optimistic over the medium term. The Healthcare Fund should attract further funds albeit from a small starting point.

Investment Industry

There is little doubt that business conditions have been improved by the very significant rallies in world equity markets from their very depressed levels of mid March. Investors have gained increasing comfort from the apparent removal of any systemic risk in the financial system, and from the unprecedented level of fiscal and monetary stimulus that has helped stabilise the outlook for both global economic and corporate profit growth. 

The hedge fund industry has slowly digested the problems of poor 2008 performance, the liquidity and integrity issues around gates and suspended redemptions and the poor publicity created around the Madoff related funds. Hedge fund performance as represented by the Credit Suisse Tremont Hedge Fund Index is up around 15% year to date and has been in positive territory all year. Although these numbers are skewed by the sharp recovery in certain strategies, such as distressed and convertible bond arbitrage which did especially poorly last year, the record nevertheless has given renewed comfort to the concept of less volatile and better risk adjusted returns. The result is that industry flows which stabilised over the summer have now turned positive.

Despite all the noise, institutional asset allocators continue to increase their exposure to absolute return strategies in an attempt to seek out improved long term compound returns from their investment portfolios. Confronted with the prospect of below trend economic growth at least in the developed world over the next few years, it seems sensible to assume that investors will seek to focus on improving the risk adjusted performance of their portfolios and increasingly to focus more on absolute than relative returns. What seems clear is that fund managers who can deliver consistent and more compelling risk adjusted and absolute returns than markets have an exciting future. 

The future growth of the hedge fund industry is likely to be driven by more "institutional" investors increasing their allocations. This, coupled with the lessons learned from the bear market, should force a more general "institutionalisation" of the industry's practices. Risk management, governance, compliance, transparency, client centricity, business model risk, liquidity and the operational robustness of the general partner are all becoming more important themes. This trend is likely to place an increased burden on the industry cost structure. We believe that Polar's long standing belief in the importance of investment in infrastructure, places the Company in a strong competitive position supported by a cost base that is well equipped to deal with this trend towards greater "institutionalisation".

The final industry observation rests on the potential tightening of the regulatory environment. This is likely to be the inevitable reaction to the financial crisis and the apparent inability of the hedge fund industry to regulate itself. However, Polar should be well positioned to deal with it. Not only is the Company regulated by the Financial Services Authority ("FSA"), but it is also registered as an investment adviser with the Securities and Exchange Commission ("SEC"). In Europe the European Union "Undertakings for Collective Investments in Transferable Securities" ("UCITS") directive offers a platform that is regulated, transparent and liquid, and it is likely to become the fund structure of choice for investors. Polar has operated in the UCITS environment since the Company was founded in 2001 and is very familiar both with UCITS fund practice and the investor base.

Financial Review

The profitability of the business in the six month period ended 30 September 2009 is set out below.

The AUM of US$1.5bn at the start of the six month period has benefited from the positive force of rising markets lifting the value of the Company's long only assets, with good performance raising the value of both long and hedge fund assets and of net subscriptions received in the six months. Inflows were spread evenly across the long and hedge fund products. AUM at the 30 September 2009 was 27% higher at US$1.9bn compared to the start of the period.

The core operating profit of the business is directly correlated to the value of AUM managed by the Company. Given the level of AUM at the start of the period, it is unsurprising that the business delivered a core operating loss of £0.9m. The level of the loss might be less than anticipated as the £0.9m profit in the same period last year was the product of average AUM being 78% higher in 2008. The relatively better than expected performance comes mainly from the reduction in the operating costs of the business to £7.3m from £10.6m in 2008, a fall of £3.3m. 

The calculation and payment of performance fees fall in the second half of the Company's financial year. Although the quantum of such fees is this year expected to be materially lower than last year it is pleasing to note that the present good performance across the majority of the Company's funds has generated potential fees that, future performance permitting, will be received later in the year.

Looking forward, the trading conditions for the Company remain challenging and the results for the full year will be determined mainly on the receipt of performance fees and the continued rise in the Company's AUM.

The Company has historically paid two dividends a year, an initial modest dividend in January and a second following the year end. The board has decided to maintain the first interim dividend at 1.0p per share (2008: 1.0p per share) to reflect the confidence that the board has in the Company's affairs. The dividend will be paid on 20 January 2010 to shareholders on the register at 4 January 2010 and the shares will trade ex dividend from 30 December 2009.

Prospects

This is an exciting time to have taken over as Chief Executive of Polar Capital. The founding philosophy established when we started the Company in 2001 was a focus on investment performance, which has proved its worth through these turbulent times. Our excellent investment performance together with our robust operational platform and our strong financial position gives me cause for cautious optimism as I look ahead to the second half of the fiscal year and beyond into 2010.

The performance of our funds should continue to attract inflows and we are also positioned to attract further investment talent in the year ahead allowing us to expand our product offering to our clients, while also developing and diversifying our business. Our distribution and client service capability will support this growth and we look forward to carefully expanding these areas as we bring in additional teams.

The external environment no doubt will continue to throw up challenges but I am confident, given the experience of the last eighteen months, that we are well placed to meet those challenges. I would like to thank all our employees for their skill and hard work over this period and to thank Mark Kary, my predecessor, for all his hard work and personal commitment during his four and half years at the helm.

Finally I would like to conclude by thanking our clients and shareholders for their continuing support through these extraordinary times.

Tim Woolley

Chief Executive

10 December 2009

  Consolidated Income Statement

for the six months to 30 September 2009

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

  Consolidated Statement of Recognised Income and Expense

for the six months to 30 September 2009

  Consolidated Balance Sheet

for the six months to 30 September 2009

  Consolidated Cash Flow Statement

for the six months to 30 September 2009

  Notes to the Unaudited Financial Information

1. General Information 

Polar Capital Holdings plc ("the Company") is a public limited Company registered in England and Wales. The unaudited financial statements to 30 September 2009 have been prepared using the accounting policies used in the Group's annual accounts to 31 March 2009 and which are set out in the annual report for that year.

The consolidated financial statements have been prepared in accordance with IFRS as adopted by the European Union and the Companies Act 1985 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets.

The consolidated financial statements incorporated the financial statements of the Company and entities controlled by the Company (its subsidiary undertakings). Where necessary adjustments are made to the financial statements of the subsidiaries to bring their accounting policies in line with the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

2. Revenue

3. Profit on ordinary activities before taxation

4. Dividends

5. Earnings per ordinary share

The calculation of basic earnings per ordinary share is based on the loss for the period of £(443,579) (September 2008: profit £416,002; March 2009: profit £8,371,134) and on 71,040,734 ordinary shares (September 2008: 70,543,819; March 2009: 69,411,145), being the weighted number of ordinary shares.

The calculation of diluted earnings per ordinary share is based on the loss for the period of £(443,579)  (September 2008: profit £416,002; March 2009: profit £8,371,134) and 75,438,132 ordinary shares (September 2008: 75,453,858; March 2009: 73,996,814), being the weighted average number of ordinary shares allowing for all options of 5,184,742 (September 2008 and March 2009: 4,479,608) which are dilutive and shares issued on the last day of the year and not yet issued under a crystallised event of 1,629,589 (September 2008: 3,365,190: March 2009: 3,259,178).

The calculation of adjusted earnings per ordinary share is based on a loss for the period of £(443,579)  but adjusted for the share-based payments charge of £188,501 (September 2008: profit of £416,002 adjusted for the cost of share-based payments of £530,417; March 2009: profit of £8,371,134 and a credit regarding share-based payments of £1,008,583) and 75,438,132 ordinary shares (September 2008: 75,453,858; March 2009: 73,996,814), being the weighted average number of ordinary shares allowing for all dilutive options and shares not yet issued under a crystallisation event. 

6. Available-for-sale financial assets

7. Reconciliation of equity

8. Notes to the cash flow statement

Reconciliation of profit before taxation to cash generated from operations

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 is a member of Polar Capital LLP and a director of the Polar Capital Technology Trust PLC (the Trust). Polar Capital LLP is the appointed investment manager of the Trust. The total fees received by the Group as investment manager of the Trust were £1,767,383 (September 2008: £1,824,295; March 2009: £2,917,985). The amounts receivable at the period end in this respect were £530,943 (Sept 2008: £505,579; March 2009: £433,513).

At the end of the period, the Group had an outstanding loan due of £870,902 (September 2008: £510,304; March 2009: 870,902) from the Polar Capital Employee Benefit Trust, which was set up in 2002 to hold ordinary shares in the Company for the benefit of employees.

10. The publication of non-statutory accounts 

The financial information contained in this Half Year report does not constitute statutory accounts as defined in S434 of the Companies Act 2006. The financial information for the six months ended 30 September 2009 and 2008 has not been audited. The information for the year ended 31 March 2009 has been extracted from the latest published audited accounts, which have been filed with the Registrar of Companies. The audited accounts filed with the Registrar of Companies contain a report of the independent auditor dated 1 July 2009 which, as disclosed in a footnote to that report, was revised on 16 October 2009 in order to rectify drafting errors. The report of the independent auditor on those financial statements contained no qualification or statement under s237(2) or (3) of the Companies Act 1985.

Shareholder Information

Directors

T H Bartlam, Non executive Chairman

T J Woolley ,   Chief Executive Officer

J B Mansell, Chief Operating Officer

H G C Aldous, Non executive director, Chairman of Audit Committee

B J D Ashford-Russell, Non executive director 

J M B Cayzer-Colvin, Non executive director, Chairman of Remuneration Committee

C M Hale, Non executive director

Ms. S E Street, Non executive director

M Thomas, Non executive director

Dividend

A first interim dividend of 1.0p per share has been declared for the year to 31 March 2010. This will be paid on 20 January 2010 to shareholders on the register on 4 January 2010. The shares will trade ex-dividend from 30 December 2009. 

Half Year Report 

The interim report will be posted to shareholders in January 2010. Copies of this announcement and of the Half Year report will be available from the Secretary at the Registered Office, 4 Matthew Parker Street, London SW1H 9N. The Half Year report will be published on the Company's website at www.polarcapital.co.uk.

Nominated Advisor and Corporate Broker to the Company

Numis Securities Limited