Polar Capital Regulatory News (POLR)

Polar Capital Holdings plc ("Polar Capital" or “the Group”)

Unaudited interim results for six months ended 30 September 2021

65% increase in core profits

Highlights

· Assets under Management ("AuM") at 30 September 2021 £23.4bn (31 March 2021: £20.9bn)

· Core operating profit† £36.3m (30 September 2020: £22.0m)

· Pre-tax profit £31.7m (30 September 2020: £27.0m)

· Basic earnings per share 26.5p (30 September 2020: 23.4p) and adjusted diluted total earnings per share† 28.1p (30 September 2020: 22.1p)

· Interim dividend per ordinary share of 14.0p (January 2021: 9.0p) declared to be paid in January 2022*

· Shareholders' funds £146.8m (30 September 2020: £114.4m) including cash and investments of £140.5m (30 September 2020: £111.3m)

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

* Further details on the timetable for the interim dividend are described on the shareholder information page

Gavin Rochussen, Chief Executive Officer, commented:

"In the six months to 30 September 2021, AuM increased by £2.5bn from £20.9bn to £23.4bn, an increase of 12% over the period and since then has increased to £25.0bn as at 12 November 2021.

"Core operating profit (excluding performance fees, other income and exceptional items) was up 65% to £36.3m compared to the comparable prior half year period and up 23% from £29.5m in the immediately preceding six-month period to 31 March 2021.

"This time last year, Polar Capital established a new Head of Sustainability role and put in place separate Sustainability and Diversity committees to increase focus on these areas, in investment and for the Group. Six of Polar Capital's funds have been classified as Article 8 under the European Union's SFDR regulations and there is a pipeline of funds aiming to reclassify as Article 8. The recently launched Smart Energy and Smart Mobility funds are classified as Article 9 funds.

"There is much greater concern about the impact of climate change, and this will result in growing demand for greener technologies and the investment landscape will be shaped by the conversations and outcomes from COP26 held in Glasgow.

"The launch of the Polar Capital Smart Energy and Smart Mobility Funds in September 2021 were well received with early flows and demonstrable appetite from potential investors in these funds.

"Our diverse and differentiated range of sector, thematic and regional fund strategies and our performance led culture where 74%, 93% and 99% of our AuM is in the top two quartiles against peers over three years, five years and since inception respectively together with significant remaining capacity provides confidence that momentum will continue."

Assets Under Management

AuM split by type

AuM split by strategy

(Ordered according to launch date)

* AuM as at 30 September 2021 was £5m.

** AuM as at 30 September 2021 comprised of seed capital of £7m. 

Chief Executive's Report

Market Overview

The six-month period to the end of September 2021 saw a change in investment environment and market leadership. Growth once again outperformed value, and the technology sector was one of the best performers, with the materials and industrials sectors at the bottom of the pack.

US 10-year bond yields and the US 2-10 year yield curve hit a post COVID-19 high on 31 March 2021 and, until recently, had been moving persistently lower as excitement about economic re-opening began to wane in the face of continuing COVID-19 outbreaks across the world. This was the opposite of the prior six-month period; equity markets had rallied strongly from the point in early November 2020 when the first announcements on effective COVID-19 vaccines were made, and the victorious US Democrats proposed a stimulatory set of policy initiatives.

News media are giving extensive coverage to supply chain problems and intermediate goods shortages across the world. At the margin, these trends are likely to lead companies to carry more inventory, and to shorten supply lines in the search for resilience.

Talk of higher inflation is widespread, particularly in the UK, where apparent labour shortages in particular industries are exacerbating goods shortages. Oil and gas prices have risen rapidly. As ever, the solution has a political dimension. Europe does not want to concede too much to Russia, which plays a big role in gas supply.

Despite the possibility that these changes in investment backdrop bring greater risk, financial markets have so far been reasonably well behaved.

The reason for such a moderate response may be that growth remains strong in much of the world; output has probably peaked at high levels but should remain above trend through 2022. Similarly, while central banks are starting to remove policy support, it is likely to be some time before policy becomes restrictive.

Equally, governments have little incentive to endanger the nascent recovery by tightening fiscal policy too rapidly. Paying down large amounts of COVID-19 related debt would be much harder in a lower growth phase.

Data indicates that US consumers have not spent all of the stimulus cheques which they received. This means that there is still pent-up consumer demand, but it may be the case that households want to retain a higher level of savings in these uncertain times.

There is much greater concern about the impact of climate change, and this will result in growing demand for greener technologies and the investment landscape will be shaped by the conversations and outcomes from COP26 held in Glasgow.

Fund Performance

The past 18 months have seen significant variability in equity market leadership, visible in the performance of value versus growth and quality, of small companies versus large and, more broadly, of disruptors versus more established businesses.

The six months to end September 2021 saw the style pendulum swing back from value to growth, consistent with lower market interest rates. Those Polar strategies with greater value orientation, such as North America and European ex UK Income underperformed over the period, although strategies which combine value and quality, such as UK Value and Phaeacian International Value, outperformed their benchmarks.

In the growth group, Emerging Market Stars and Asian Stars, both of which incorporate sustainability as an important part of their process, delivered outperformance, building on their strong foundations since inception at Polar in 2018.

Polar Capital's Technology and Healthcare teams have had a tougher time in the first six months of the financial year. The Global Technology Fund and the Healthcare Opportunities fund underperformed, in part due to the outperformance of the very large companies in their respective areas; both strategies have an all-cap orientation. The Technology team came into 2021 with a cautious view of their sector, due to high valuations; their defensive tactics, expressed via cash and index puts, have not yet borne fruit as valuations across the sector have continued to go up.

The small and mid-cap Healthcare Discovery fund, the Healthcare Blue Chip fund, and the Automation and Artificial Intelligence fund have outperformed their benchmarks nevertheless.

This time last year, Polar Capital established a new Head of Sustainability role and put in place separate Sustainability and Diversity committees to increase focus on these areas, in investment and for the Group. Six of Polar Capital's funds have been classified as Article 8 under the European Union's SFDR regulations and there is a pipeline of funds aiming to reclassify as Article 8. The recently launched Smart Energy and Smart Mobility funds are classified as Article 9 funds.

As at 29 October 2021, 74% of Polar Capital's UCITS fund AuM is ranked in the top two quartiles versus peers over three years with 21% ranked in the top quartile over the same period. Over five years, 74% of AuM is ranked top quartile and 93% ranked in the top two quartiles versus the Lipper peer group. Since inception, 84% of AuM is ranked in the top quartile and 99% is ranked in the top two quartiles.

AuM and Fund Flows

In the six months to 30 September 2021, AuM increased by £2.5bn from £20.9bn to £23.4bn, an increase of 12% over the period and since then has increased to £25.0bn as at 12 November 2021. The £2.5bn increase in AuM comprised net subscriptions of £690m and £1,807m relating to market movement and fund performance. There were net inflows of £596m into segregated mandates, net inflows from share issuance of £136m by the investment trusts and net outflows of £42m from the open-ended funds.

In the six months, the largest beneficiaries of net inflows were the sustainability oriented Emerging Market Stars Fund with £366m of net inflows and the Asian Stars Fund which had net inflows of £70m. Within the healthcare suite of funds, the Biotechnology Fund benefited from net inflows of £199m and three segregated healthcare mandates were funded with £427m. The Polar Capital Global Financials Trust had share issuances amounting to £154m while the Polar Capital Technology Trust had net share buy-backs amounting to £18m.

The Convertibles team attracted £85m of net inflows into their Global Convertible Fund and Global Absolute Return Fund. The Phaeacian International Mutual Fund had net inflows of £27m and the Japan Value Fund benefited from net inflows of £20m reversing a multi-year period of sustained net outflows.

The Technology Fund, which had benefited from inflows in 2020, suffered from client allocation decreasing away from the technology sector as well as profit taking by investors following excellent absolute performance over the past years. Net outflows from the fund, which was soft closed in 2020, were £413m and the A&AI Fund had outflows, for similar reasons, of £49m. While the UK Value Opportunities Fund, also soft-closed in 2020, suffered modest net outflows of £18m in the period, the team benefited from the funding of a segregated mandate amounting to £169m. Our North American Fund which has suffered sustained prior periods of net outflows saw this trend reduce and net outflows in the six-month period were £33m with net inflows in the more recent months.

Following the retirement of the lead fund manager, the GEM Income Fund was closed and merged with the Emerging Market Stars Fund resulting in £34m of net outflows in the period leading up to the merger of the two funds. Other funds experiencing outflows in the period were the European ex-UK Income Fund, Global Insurance Fund and Healthcare Opportunities Fund, although outflows from the latter were more than offset by the funding of segregated healthcare mandates.

The launch of the Polar Capital Smart Energy and Smart Mobility Funds in September 2021 were well received with early flows and demonstrable appetite from potential investors in these funds.

Results

Average AuM over the six months to 30 September 2021 increased by 53% to £22.5bn from £14.7bn in the comparable prior half year period, while there has been a 20% rise in average AuM compared to average AuM of £18.7bn for the immediately preceding six months to 31 March 2021. The increase in average AuM resulted in net management fees, after commission and rebates payable, increasing by 50% to £92.9m compared to the comparable six-month period and rose 15% compared to the immediately preceding six-month period. Management fee yield margin† declined, as anticipated, by 1bp to 83bp compared to the comparable prior six-month period.

Core operating profit† (excluding performance fees, other income and exceptional items) was up 65% to £36.3m compared to the comparable prior half year period and up 23% from £29.5m in the immediately preceding six-month period to 31 March 2021.

Profit before tax increased by 17% to £31.7m compared to the comparable prior half year period, although it declined compared to the immediately preceding six-month period which included performance fee profits which crystalise in the second half of our financial year. Basic EPS has increased by 13% compared to the half year period to September 2020.  Adjusted diluted core EPS† of 28.2p is a 25% increase on the immediately preceding six months to 31 March 2021 and a 56% increase over the comparable half year period to September 2020. Adjusted diluted total EPS† of 28.1p is a 27% increase compared to the comparable six-month period to 30 September 2020.

† The non-GAAP alternative performance measures shown here are described on the APM page.

* A reconciliation to reported results is given on the APM page.

In accordance with the stated dividend policy, the Board has declared an interim dividend of 14p to be paid in January 2022 (January 2021: 9p). This represents a 56% increase in the first interim dividend which aligns with the increase in adjusted diluted core EPS.

Net inflows have continued in October 2021 and early November 2021 and the pipeline for the remainder of the financial year is encouraging.

Strategic progress and thanks

The sustainable thematic team joined Polar Capital in September 2021 and the Polar Capital Smart Energy and Smart Mobility Funds were launched. This provides additional capacity in appealing equity strategies and will, over time, further diversify the concentration of our assets under management across a broader array of teams. There has been considerable progress in the growth and diversification of our distribution activities and further investment in our digital marketing efforts. Following the funding of further segregated institutional mandates in the period, we had in excess of £1bn in segregated mandates at the period end including a mandate with an Australian institution marking success in our expansion into the Asia Pacific region.

Continued progress has been made in the area of sustainability both at Polar Capital corporate level and within our funds. In terms of SFDR, we have two Article 9 funds, six Article 8 Funds with a pipeline of funds aiming to reclassify as Article 8.

With the attainment of a highly credible three-year track record since joining Polar Capital, the AuM in the sustainable Emerging Market Stars suite of fund strategies now exceeds £1bn and has been instrumental in establishing a meaningful and valued client base in the Nordic region.

During the period, Polar Capital was recognised as Boutique of the Year in the Financial News Fund Manager awards.

We are extremely grateful for the support of our clients and the hard work and commitment of our partners and staff during the period as we continue to emerge from lockdown into a more normalised working environment.

Outlook

Our diverse and differentiated range of sector, thematic and regional fund strategies and our performance led culture where 74%, 93% and 99% of our AuM is in the top two quartiles against peers over three years, five years and since inception respectively together with significant remaining capacity provides confidence that momentum will continue.

Gavin Rochussen

Chief Executive

19 November 2021 

Alternate Performance Measures (APMs)

Summary of non-GAAP financial performance and reconciliation of APMs to interim reported results

The summary below reconciles key APMs the Group measures to its interim reported results for the current year and also reclassifies the line by line impact on consolidation of seed investments to provide a clearer understanding of the Group's core business operation of fund management.

Any seed investments in newly launched or nascent funds, where the Group is determined to have control, are consolidated. As a consequence, the statement of profit or loss of the fund is consolidated into that of the Group on a line by line basis. Any seed investments that are not consolidated are fair valued through a single line item (other income) on the Group consolidated statement of profit or loss.

The effect of the adjustments made in arriving at the adjusted diluted total EPS and adjusted diluted core EPS figures of the Group is as follows:

Interim Consolidated Statement of Profit or Loss

For the six months to 30 September 2021

Interim Consolidated Statement of Other Comprehensive Income

For the six months to 30 September 2021

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

Interim Consolidated Balance Sheet

As at 30 September 2021

Interim Consolidated Statement of Changes in Equity

For the six months to 30 September 2021

Interim Consolidated Cash Flow Statement

For the six months to 30 September 2021

Notes to the Unaudited Interim Consolidated Financial Statements

For the six months to 30 September 2021

1. General Information, Basis of Preparation and Accounting Policies

1.1 General information

Polar Capital Holdings plc ("the Company") is a public limited Company registered in England and Wales.

1.2 Basis of Preparation

The unaudited interim condensed consolidated financial statements to 30 September 2021 have been prepared in accordance with IAS 34: Interim Financial Reporting.

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 March 2021, which 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 accounting policies adopted and the estimates and judgements used in the preparation of the unaudited interim condensed consolidated financial statements are consistent with the Group's annual financial statements for the year ended 31 March 2021.

1.3 Group information

The Group is required to consolidate seed capital investments where it is deemed to control them. In addition to the operating subsidiaries and seed capital investments consolidated at 31 March 2021, the Group has consolidated the following two funds as at 30 September 2021:

· Polar Capital Smart Energy Fund

· Polar Capital Smart Mobility Fund

1.4 Going concern

The Directors have made an assessment of going concern taking into account both the Group's current results as well as the Group's outlook. As part of this assessment the Directors have used information available to the date of issue of these interim financial statements and considered the following key areas:

· Analysis of the Group's budget for the year ending March 2022, longer-term financial projections and its regulatory capital position and forecasts. The stress testing scenarios applied as part of the Group's ICAAP have also been revisited to ensure they remain appropriate.

· Cash flow forecasts and an analysis of the Group's liquid assets, which include cash and cash equivalents and seed investments.

· The operational resilience of the Group and its ability to meet client servicing demands across all areas of the Group's business, including outsourced functions, whilst ensuring the wellbeing and health of its staff.

The Group continues to maintain 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.

2. Revenue

Effective 1 April 2021, the Group has discontinued its revenue hedging programme.

3. Operating costs

a) Operating costs include the following items:

b) Auditors' remuneration:

4. Other income

Net loss on financial liabilities at fair value through profit or loss includes a mark to market charge of £0.7m relating to the deferred consideration payable on the Dalton acquisition.

5. Dividends

On 31 July 2021, the Group paid a second interim dividend for 2021 of 31p (2020: 25p) per ordinary share.

6. Share-based Payments

A summary of the charge to the consolidated statement of profit or loss 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 intended to be earnings enhancing for the Group and 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 November 2021, the Biotechnology team called for a full conversion and the Convertible team called for a partial conversion of preference shares into Polar Capital Holdings equity (2020: none). At 30 September 2021, three sets of preference shares (2020: four sets) have the right to call for conversion.

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

Estimated number of ordinary shares to be issued against preference shares with a right to call for conversion:

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

7. Earnings Per Share

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

8. Goodwill and intangible assets

Goodwill relates to the acquisition of Dalton Capital (Holdings) Limited, the parent company of Dalton Strategic Partnership LLP (Dalton), a UK based boutique asset manager, which completed on 28 February 2021.

Intangible assets relate to investment management contracts acquired as part of the business combination with Dalton and the asset acquisition related to the International Value and World Value equity team from the Los Angeles based asset manager First Pacific Advisors LP (FPA). The net book value of these intangible assets as at 30 September 2021 were £10.9m and £9.1m respectively.

1. The re-measurement of goodwill relates to the purchase price adjustment recognised in the current period.

2. Revaluation of intangible asset relates to investment management contracts acquired from FPA and is a result of the subsequent fair value measurement of the deferred consideration amount payable to FPA.

Goodwill is tested for impairment at least on an annual basis or more frequently when there are indications that goodwill may be impaired.

The Group has reviewed the investment management contracts related intangible assets as at 30 September 2021 and has concluded that there are no indicators of impairment.

9. Issued Share Capital

During the period, Polar Capital Holdings plc has issued 34,266 shares on exercise of employee share options and 1,333,921 shares in connection with the crystallisation of manager preference shares.

10. 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 and use observable market data, such as spot and forward rates, as inputs.

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.

During the period there were no transfers between levels in fair value measurements.

Movement in liabilities at FVTPL categorised as Level 3 during the year were:

11. Notes to the Cash Flow Statement

Reconciliation of profit before taxation to cash generated from operations

12. 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. All related party transactions during the period are consistent with those disclosed in the Group's annual financial statements for the year ended 31 March 2021 and have taken place on an arm's length basis.

13. The Publication of Non-Statutory Accounts

The financial information contained in this unaudited interim report for the period to 30 September 2021 does not constitute statutory accounts as defined in s434 of the Companies Act 2006. The financial information for the six months ended 30 September 2021 and 2020 has not been audited. The information for the year ended 31 March 2021 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 30 June 2021. The report of the independent auditor on those financial statements contained no qualification or statement under s498 of the Companies Act 2006.

Shareholder Information

Directors

David Lamb Non-executive Chairman

Gavin Rochussen Chief Executive Officer

John Mansell Executive Director

Jamie Cayzer-Colvin Non-executive Director

Alexa Coates Non-executive Director, Chair of Audit and Risk Committee

Win Robbins Non-executive Director, Chair of Remuneration Committee

Andrew Ross Non-executive Director

Samir Ayub Executive Director (appointed 17 November 2021)

Laura Ahto Non-executive Director (appointed 17 November 2021)

Company No.

Registered in England and Wales

4235369

Registered Office

16 Palace Street

London, SW1E 5JD

Tel: 020 7227 2700

Group Company Secretary

Neil Taylor

Dividend

A first interim dividend of 14.0p per share has been declared for the year to 31 March 2022. This will be paid on 14 January 2022 to shareholders on the register on 24 December 2021. The shares will trade ex-dividend from 23 December 2021.

Remuneration Code

Disclosure of the Group's Remuneration Code will be made alongside its Pillar 3 disclosure which is available on the Company's website.

Half Year Report 

Copies of this announcement and of the Half Year report will be available from the Secretary at the Registered Office, 16 Palace Street, London SW1E 5JD and from the Company's website at www.polarcapital.co.uk 

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.

ENDS