Polar Capital Regulatory News (POLR)

POLAR CAPITAL HOLDINGS plc

Preliminary Group Audited Results for the year ended 31 March 2012

13 June 2012

Financial highlights

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

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

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

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

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

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

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

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

Corporate Highlights

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

·; Performance fees earned for 11th successive year

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

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

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

Tim Woolley, Chief Executive, commented:

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

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

Dividend

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

About Polar Capital

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

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

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

* Including managed accounts run off the same strategy

A Financial Opportunities Fund was launched in May 2011

B North American Fund was launched in November 2011

C European Market Neutral Fund was launched in March 2012

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

CHAIRMAN'S STATEMENT

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

Results

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

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

Market Background

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

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

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

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

Funds and Performance

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

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

Source: Lipper

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

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

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

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

Developments

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

Dividend

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

Outlook

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

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

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

The Board

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

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

Annual General Meeting

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

Tom Bartlam

Chairman

CHIEF EXECUTIVE'S STATEMENT

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

- Increase the assets in our existing products

- Increase the range of products offered by existing teams

- Acquire and recruit additional investment talent

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tim Woolley

Chief Executive

FINANCIAL REVIEW

Profit and Loss account

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

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

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

Share-based payments

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

Analysis of the cost of share-based payments:

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

Preference shares

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

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

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

Amortisation of intangible assets

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

Balance Sheet and cash

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

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

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

Business Risk

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

Going Concern

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

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

John Mansell

Finance Director

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

Hugh Aldous

Chairman of the Audit Committee

John Mansell

Finance Director

SELECTED NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2011

1. Accounting policies

General

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

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

Basis of preparation

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

Business combinations

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

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

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

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

Intangible assets

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

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

2. Operating segments

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

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

3. Business combinations

Acquisition of HIM Capital Holdings Limited

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

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

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

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

4. Earnings per ordinary share

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

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

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

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

5. Intangible assets

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

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

Amortisation and impairment

Net book value

Status of preliminary announcement

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

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

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

Copies of Report and Accounts

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

Annual General Meeting

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

Forward looking statements

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

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