Record Regulatory News (REC)

3 Jun 2008 07:00



Record plc

PRESS RELEASE

3 June 2008

MAIDEN PRELIMINARY RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 MARCH 2008

Record plc, the specialist currency investment manager, today announces its maiden set of unaudited results for the year ended 31 March 2008, following its admission to trading on the London Stock Exchange's main market for listed securities in December 2007.

Financial highlights:

$55.7bn AuME at 31 March 2008 was 35% higher than the prior year 

Pre tax profit up 106% to £40.4m

Management fee income of £44.0m was 105% higher than the prior year

Performance fee income of £22.2m was 63% higher than the prior year

Operating profit margin to 31 March 2008 of 61% (pre IPO costs) compared to 55% for the year ended 31 March 2007

Basic EPS increased to 12.65 pence compared to 6.67 pence for the year to 31 March 2007 

Proposed final dividend for the six months to 31 March 2008 is 2.160 pence per share.

Operating highlights:

Strong demand for the Absolute Return product underpinned an exceptional year of growth

Investment performance in the last three quarters has suffered from contagion from the credit crunch; despite this the five-year Absolute Return track record remains strong

Client numbers have continued to rise, reaching 141 by year end 31 March 2008.

  Commenting on the results Neil Record, Chairman and Chief Executive Officer of Record plc, said: 

"Last year was a transformational year for Record, culminating in our admission to trading on the London Stock Exchange.

The Company has seen substantial top- and bottom-line growth, and a significant increase in operating margins, year-on-year.  However performance over the last three quarters was held back by very difficult investment conditions in the currency markets due to spillover effects of the credit crunch.  Despite these we have continued to grow AuME and our blue-chip client base.

Looking forward, we are laying the foundations for Record's continued growth in both existing and new products, by developing innovative distribution routes and promoting the adoption of currency for absolute return and active currency hedging in the global investment community.  We believe that investors will continue to allocate new money to currency management, and the company is exceptionally well positioned to win a significant proportion of this business."

Analyst briefing

There will be a presentation for analysts at 9.30am on Tuesday 3 June 2008 at the offices of JPMorgan Cazenove Limited at 20 Moorgate London EC2R 6DA. A copy of the presentation will be made available on the Group's website at www.recordcm.com.

For further information, please contact:

Record plc: +44 1753 852222

Neil Record

Chief Executive Officer

Peter Wakefield

Chief Operating Officer

Mike Timmins

Chief Financial Officer

Hogarth Partnership +44 207 357 9477 

Nick Denton, Julian Walker, Vicky Watkins

  Chairman and Chief Executive Officer's statement

Introduction

I am pleased to present Record plc's first set of preliminary results since the Company was admitted to trading on the London Stock Exchange's main market for listed securities in December 2007.

Highlights of the year

The year just ended has been a transformational one for us. It saw the ending of over 24 years as a private company and the opening of a new chapter as a public company.

Despite very difficult investment conditions in the last three quarters of the year (of which more below), our revenue, essentially all fee income, grew by 88% compared to the previous year. The economies of scale inherent in asset management meant that this translated into pre-tax profit growth of 106% and basic earnings per share growth of 90%.

Management fee income grew faster (+105%) than performance fee income (+63%). This is because very strong investment performance in the first quarter of the year (crystallising most of the year's performance fees in one quarter) was followed by three quarters of much weaker performance.

Our AuME grew at a slower rate (35%) than the revenue and profits, implying that the new assets command higher fees. This is true, not because fee rates hardened in the year, but because most of the new assets were Absolute Return mandates, which command approximately twice the marginal fee rate of Active Hedging mandates. Active Hedging mandates in turn command about six times the marginal fee rate for Passive Hedging.

We propose a final dividend for the year of 2.160 pence per share. This is near the lower end of the two- to four-times cover range of our dividend policy. We are recommending this level of dividend in view of the low level of performance fees in the last three quarters of the year. Conversely, in years where performance fees are strong, we would expect to smooth the potential jump in dividend by applying a higher cover multiple.

After paying the recommended dividend, we will have c. £20m in cash on the balance sheet - rather more than two years of the current overhead run rate.

Further and more detailed analysis of the results for the year (including payment of the dividend) can be found in the Business Review.

Investment Philosophy

Throughout the Group's life, we have believed that the most effective way to exploit the subtle inefficiencies present in the currency market is by using a disciplined trading process derived from models which are as simple as possible (but no simpler). These models are based on a thorough understanding of the foreign exchange market and its participants, not on curve-fitting regressions or other sophisticated mathematical techniques. In particular, we demand from our models that we can explain their foundation using standard English, without resort to mathematics, and that the explanations are supported by external, verifiable evidence. This approach is the antithesis of the popular image of the currency trader as the short-term 'punter' who measures his bets' horizons in minutes or hours. Our processes have core horizons of between six months and one year, and we would wish our performance to be measured over a minimum of three years, and preferably longer.

While we maintain a watching brief on the 'fundamental' value of currencies vis-à-vis each other, we do not base any of our processes on forecasts that rely on currencies returning to 'fair' value. Experience has taught us that the currency market has very long cycles of over- and under-valuation.

By contrast, we believe that Governmental dominance of the short end of the interest-rate curve has created a continuing opportunity to add value over time - the so-called 'forward rate bias'. While Governments retain the ability to choose short-term interest rates to control inflation (and sometimes aggregate demand), we will be given the opportunity to take positions in the currency markets which will have a materially greater than 50% chance of success. In addition, we utilise highly-disciplined loss-control processes that exploit another opportunity in the currency market - that of 'momentum'. Momentum (or more formally "serial correlation of price changes"), is a feature of the same characteristic that has steered us away from fundamental value-based forecasting.

Investment Performance

The year ending 31 March 2008 was an exceptionally challenging one in the currency markets. The cause and nature of the challenge came from a new (but now familiar) source - namely the credit crunch.

Very strong investment performance in the first quarter (ending 30 June 2007) was followed by a strong reversal in the second and subsequent quarters.

The challenges were two-fold. The first was the very strong risk-averse sentiment that overwhelmed the asset management and banking industry from July 2007. This was reflected in the currency market as a flight from what is known as the 'carry trade' (investing in high interest rate currencies by borrowing low interest rate currencies). While Record is not a tactical carry trader, we do have a bias for holding long positions in currencies with high relative interest rates and short positions in currencies with low relative interest rates. The unwinding of the 'carry trade' therefore caused initially a loss of the profit embedded in our end-June 2007 valuations and then triggered our loss-control mechanisms to prevent further losses from 'anti-carry' currency movements. The remainder of the year has been characterised by a series of 'false dawns', in which we continuously test the market for the ending of these adverse trends.

The second challenge was the appearance in 2007 of a high level of short-term correlation between the returns of high interest rate currencies and the returns in global equities and credit. This was translated into a high level of correlation between the performance of our Absolute Return product and global quoted equity markets. The historical long-term correlation of these two asset classes is close to zero (even under previous periods of market stress), so the emergence of a high correlation, even if temporary, is unusual. We view this correlation as a result of the pervasive contagion (originating in the credit markets) that has swept through all markets, creating risk-aversion across most asset categories, however fundamentally unrelated.

We regard the recent disappointing investment performance of our Absolute Return product, and the correlations with other asset classes, as a direct result of the very unusual circumstances of the credit crunch. We remain firmly committed to the principles underlying our Absolute Return product, and are confident that our investment performance will recover as the impact of the credit crunch works through the system, and likewise that the correlation between our Absolute Return product's returns and equities will fall to its long-term average of around zero.

Group Strategy and Growth Plans

We are undertaking a series of projects and developments to lay the foundations for continued growth in both existing and new products. These include:

A rewrite of our existing proprietary investment process and dealing software to allow us more flexibility to respond to non-standard client requests, and to simplify future system maintenance and upgrades. This system re-write will not alter our investment process - just further facilitate its efficient delivery.

Increased concentration on the US pension and foundation sectors, with more frequent contact and travel, and conference sponsorships, to raise the profile of both currency as an asset class and Record in this very large (and largely untapped) market.

The signing of third-party marketing agreements with selected intermediaries, by means of which we open new distribution routes, distinct from the investment consultants. This is designed to give us access to new groups of investors, particularly high net worth individuals.

Making the case at conferences and elsewhere that currency can be seen as a manager-independent value-added asset class, and as such can be seen as a staple portfolio constituent.

We believe that there is a tremendous opportunity for Record to lead, and benefit from, the continued adoption of currency for Absolute Return and Active Hedging in the global investment community. The currency management sector is very small compared to the big asset management sectors - equities; fixed income; private equity; property and hedge funds, but the underlying currency market has the scale to accommodate currency management at the 'top table' of asset classes.

Even in these very challenging market conditions, Record is being invited to bid for, and winning, both Absolute Return and Active Hedging mandates. We think this reflects the strength of our investment processes, the quality of our track record and the reputation of the team at Record.

When investors choose to allocate new money to currency management, we believe that Record is exceptionally well placed to win a significant proportion of this business.

Neil Record

Chairman and Chief Executive Officer

  Business review (extract)

Results for FY08

The year to March 2008 was the most successful year in the Group's history. Consideration of the following key performance indicators confirms the consistency of the progress across all the key performance measures of the Group.

* excluding profit related bonus and IPO costs

**  including profit related bonus

AuME - increased by 35% during the year, largely as a result of net inflows from both new and existing clients. AuME increased across all three of the Group's primary products (currency for Absolute Return, Active Hedging and Passive Hedging). 

Client numbers - this represents the number of separate legal entities that have invested in a Record managed fund or appointed Record directly as an investment manager. Each entity may have more than one mandate. The number of clients at 31 March 2008 was 58% higher than at the previous year end.

Number of employees - the number of employees increased to 54 from 42 during the year to 31 March 2008. This represents an increase of 29% and, when compared to the growth in income and profit before tax, is indicative of the leverage that has been achieved from the operational infrastructure.

Operating costs to management fees - the improvement in AuME and in blended fee rates has exceeded the increase in operating costs and resulted in an improvement in the cover of management fees to operating costs to 5.0 times.

Total remuneration to revenue - a further indication of the operational leverage is demonstrated in the improvement achieved in the ratio of total remuneration costs to revenue, which for the year to 31 March 2008 was 3.0 times covered.

Operating Profit Margin (before IPO costs) - the combination of higher blended fee rates and controlled cost increases resulted in the operating profit margin improving to 61% for the year to 31 March 2008. 

Basic EPS - the strong growth in AuME and associated revenues through the year together with improving operating profit margin is reflected in the Group's earnings per share increasing to 12.65 pence per share (2007: 6.67 pence per share).

AuME Growth 

The growth in AuME achieved during the 2008 financial year of $14.4bn represents a 35% increase since 31 March 2007.

The Group has been successful in attracting net AuME inflows of $14.8bn from clients including $13.5bn from new clients. Other movements included:

a fall of $3.4bn due to investment performance in the Group's pooled funds which is compounded on a geared basis into the AuME in those funds;

a fall of $0.7bn relating to the levels of global stock and other markets, as many mandate sizes are linked to stock and other market levels;

a gain of $3.7bn due to changes in exchange rates over the period which affect the conversion of non-US dollar mandate sizes into US dollar AuME. NB this does not have an equivalent impact on the sterling value of fee income.

Product mix

The AuME of all products increased during the year with that of the Absolute Return product increasing by $9bn, a 45% increase during the year. Record's Absolute Return products are offered on either a segregated mandate basis or through pooled funds, in which clients subscribe for units in funds for which Record is the distributor and investment manager. The success of the pooled fund structures was confirmed by the AuME of pooled Absolute Return mandates overtaking that of segregated mandates during the financial year 2008. Two new pooled funds were set up during the year offering clients increased choice in currency strategy and risk exposure.

Active Hedging mandates increased during the year by $0.8bn, a 19% increase. Indications are that certain groups of investors may be seeking to protect existing gains or limit currency risk on portfolios denominated in currencies other than their base currency by choosing to hedge their currency exposures actively rather than passively. If these indications are sustained and translate into new client business for Record, the Active Hedging AuME is likely to increase further in both absolute and proportional terms. 

Passive Hedging AuME increased by $3.1bn, a 20% increase in the year. This increase is the result of combined mandates under which an additional Absolute Return or Active Hedging Mandate will incorporate an element of Passive Hedging.

The overall product mix has moved towards the higher margin Absolute Return product which now makes up 52% of the Group's AuME (2007: 48%). Pooled funds now make up 27% of AuME (2007: 22%) and segregated funds 25% of AuME (2007: 26%). 

Client Numbers

At 31 March 2008, Record had 141 clients. The Group has experienced a sustained period of growth in client numbers over the last three financial years and the growth in client numbers achieved during the 2008 financial year (plus 52) exceeded the increase in the year to March 2007 (plus 43).

The strongest rate of increase was in Absolute Return clients: up from 72 to 133. Within that the number of pooled fund clients, predominately in the UK, grew most quickly. The pooled fund structure enables smaller clients to access the investment process and, as a result, there are a greater number of clients of a smaller average size than with segregated accounts.

Substantially all Record's clients are wholesale investors with corporate and public pension funds collectively representing 76% of the Group's AuME at 31 March 2008.

The client base is geographically diverse with clients based in the UK making up 58% of the Group's AuME at 31 March 2008. European clients outside the UK represent a further 32% of AuME.

  FINANCIAL REVIEW 

Total income increased by 88% to £66.2m. Total expenditure (excluding IPO costs) increased by 62% to £25.7m. Profit before tax increased by 106% to £40.4m.

  Fees

The growth in the number of clients and increase in AuME has driven the growth in total fee income which was equal to a compound annual growth rate of 130 per cent. for the three year period 1 April 2005 to 31 March 2008. 

Record charges fees to its clients based upon the AuME of the product provided. Record typically offers Absolute Return clients the choice of paying an asset based management fee only or a management fee plus performance fee alternative. Higher performance fee rates usually accompany lower management fee rates, and vice versa, and the fee combinations are structured so that Record is indifferent between them in the medium term.

*bps = basis points which are 100th of one percentage point

(Average management fee rates = fees earned in period / average AuME through period)

Both management fees and performance fees are normally invoiced on a quarterly basis, although Record invoices management fees for some of its larger clients monthly. Performance fees are subject to a "high water mark" clause that states that cumulative performance, typically since inception of the mandate, must be above the previous high point on which performance fees were charged before performance fees are charged again. Record charges similar fees for both segregated and pooled Absolute Return mandates and generally offers lower marginal fee rates for larger mandate sizes.

Management Fees

Management fee income during the 2008 financial year was £44.0m, which is more than double the management fee income during the previous financial year (2007: £21.5m). The table below shows that the most significant increase in management fee income was attributable to the Absolute Return product which grew to £38.1m and represented 87% of total management fee income. This reflects the increase in AuME of the Absolute Return product and the higher management fee rates that the Absolute Return product attracts relative to the Group's hedging products.

Within Absolute Return the growth in pooled fund income exceeded the growth in segregated Absolute Return income. The pooled fund structure has proved to be an attractive alternative to the segregated structure for many clients and has allowed smaller clients to make an allocation to currency for absolute return.

Performance Fees

Performance fees earned in the year were £22.2m compared with £13.6m in the previous year (an increase of 63%). Performance fee structures apply primarily to Absolute Return mandates and, as mentioned earlier, clients may choose between management fee only structures or lower management fees with performance fee structures. The balance is approximately 60:40 in favour of management fee only structures, although the trend in the latest subscriptions has been towards management and performance fee structures.

Operating Margin

The operating profit for the financial year ended 31 March 2008 (before IPO costs of £1.3m) of £40.6m was more than double the operating profit for the previous financial year (2007: £19.4m). The Group achieved an operating profit margin of 61% prior to IPO costs for the financial year ended 31 March 2008 (55% in 2007). The increase has arisen due to scale efficiencies achieved as the Group has grown its revenues whilst managing its costs effectively. 

During the financial year ended 31 March 2008, total operating expenditure (pre IPO costs) of the Group increased by £9.8m to £25.7m, an increase of 62%. Of this increase, £1.3m related to non-personnel related costs which represented a 52% increase on the previous year.

Personnel Costs

In order to support the growth of the business the number of employees in the Group has increased to 54 at 31 March 2008 from 42 at 31 March 2007. The key areas of growth have been in Client Services, Research and Operations.

Personnel costs (excluding Group Profit Bonus) increased to £5.1m, which represented a 35% increase on the previous year. Of the net increase of twelve staff during the year three were in investment research, two were in trading, one in client services and the balance of six in the support services of compliance, finance and legal. The Group Profit Bonus is currently 30% of pre bonus earnings before interest and tax (EBIT) and increased to £16.8m from £9.6m in the previous financial year. This represents a year on year increase of 75% compared with 88% year on year increase in total fee income.

The IPO resulted in a one off cost of £1.3m. 

Cash Flow

The Group's ability to generate cash has remained strong. The Group generated £10.0m of net cash flow during the financial year ended 31 March 2008. The cash generated from operations before tax was £42.0m of which £8.8m was paid in taxation and £24.2m was paid in dividends. At 31 March 2008 the closing cash and cash equivalents was £22.5m.

Capital Management

The Board's intention is to retain sufficient capital within the business to meet continuing obligations, sustain future growth and to provide a buffer against adverse market conditions. Prior to the IPO, the Group created a financial model to assist it in estimating future capital requirements over a four year time horizon under various scenarios. It is the Group's stated policy that any accumulated capital surplus to its identified capital requirements will be returned to shareholders in an appropriate manner. The Group has no debt to repay or service. Shareholders' funds were £18.5m at 31 March 2008 (2007: £14.9m).

Regulatory Capital

The Group established its Internal Capital Adequacy Assessment Process (ICAAP) during the financial year ended 31 March 2008, introducing an active risk-based approach to monitoring and managing risks, and ensuring that it maintains a minimum amount of capital to cover those risks. At 31 March 2008, Record had Tier 1 capital of £12.1m which provided excess regulatory capital of £10.5m using the new rules and £10.6m using the old rules. The Group's capital resources were comfortably in excess of the regulatory requirements throughout the year.

Dividends

At the time of the IPO, the Group stated its intention to distribute between one quarter and one half of post tax earnings by way of a dividend and that any final dividend declared for the year ended 31 March 2008 would apply this policy in respect of the six month period ended 31 March 2008. In respect of the year ended 31 March 2008, the Board has decided to recommend a final dividend of £4.8m, equivalent to 2.160 pence per share which represents 50% of the profit after tax for the six month period ended 31 March 2008. Subject to shareholder approval, the dividend will be paid on 28 July 2008 to shareholders on the register on 20 June 2008, the ex-dividend date being 18 June 2008.  The dividends of £24.2m recognised in the Financial Statements for the year ended 31 March 2008 were all paid out before Record was admitted to trading on the London Stock Exchange's main market for listed securities. A dividend was paid to shareholders on 20 July 2007 which equated to a distribution of £4.2m and equivalent to 1.875 pence per ordinary 0.025 pence share. An exceptional pre IPO dividend was paid on 13 November 2007 which equated to a distribution of £20.0m and was equivalent to 9.033 pence per ordinary 0.025 pence share.

Regulatory Environment

Record Currency Management Limited (RCML) is authorised and regulated in the UK by the Financial Services Authority. RCML is additionally registered as an Investment Adviser with the Securities and Exchange Commission in the United States and in the category of International Adviser (Investment Counsel & Portfolio Manager) with the Ontario Securities Commission in Ontario.

During 2007, the Group undertook a project to ensure its preparedness for the Markets in Financial Instruments Directive (MiFID) and to assess the capital requirements of the business required by the Capital Requirements Directive (CRD). The Group's capital resources are well in excess of the regulatory requirement.

The impact of MiFID for RCML was mainly in the areas of client re-categorisation and trading (in terms of the further development of the best execution policy and the two-way agreements required for continued over-the-counter dealing).

The Internal Capital Adequacy Assessment Process (ICAAP) which came into effect on 1 January 2008 involves the Group's assessment of its key risks and how much capital it needs in respect of those risks. As a result of this process the Group's capital requirement increased slightly but, as stated above, the Group holds significant capital surplus over the regulatory requirement.

The Current Financial Year

In conclusion, the recent progress made in the business is reflected in the financial performance for the year to 31 March 2008 which, in addition to the developments in risk management and internal controls, provides an excellent foundation for further growth during the coming financial year. The market conditions during the second half of the year ended 31 March 2008 have been challenging but have provided opportunities, in particular, for the Group's Active Hedging product which will be of value to clients seeking to protect gains made during periods of base currency depreciation.

RECORD PLC

GROUP INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2008

UNAUDITED

RECORD PLC

GROUP BALANCE SHEET FOR THE YEAR ENDED 31 MARCH 2008

UNAUDITED

RECORD PLC

GROUP STATEMENT OF CHANGE IN EQUITY FOR THE YEAR ENDED 31 MARCH 2008

UNAUDITED

RECORD PLC

GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2008

UNAUDITED

NOTES

The preliminary results for the year ended 31 March 2008 are unaudited. The financial information included in this statement does not constitute the Group's statutory accounts within the meaning of Section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 March 2008 will be delivered to the Registrar of Companies imminently.

The annual report will be posted to the shareholders on or before 25 June 2008. Record's Annual General Meeting will be held on 24 July 2008 at 10.00am at Morgan House, Madeira Walk, Windsor, Berkshire SL4 1EP.

In preparing the financial information included in this statement the Group has applied policies which are in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union at 31 March 2008. The accounting policies applied in these financial statements are consistent with those applied in the Group's prospectus, prior to being admitted to trading on the London Stock Exchange's main market for listed securities on 3 December 2007. The prospectus is available on the Group's website.

Record was admitted to the Official List of the Financial Services Authority on 3 December 2007. Non-recurring costs of £1.3m were charged against the income statement within administrative expenses in this respect.  

3 EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the profit for the financial period attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the year.

Diluted earnings per share is calculated as for the basic earnings per share with a further adjustment to the weighted average number of ordinary shares to reflect the effects of all dilutive potential ordinary shares.

There is no difference between the profit for the financial year attributable to equity holders of the parent used in the basic and diluted earnings per share calculations.

The dividends paid by the Group during the year ended 31 March 2008 totalled £24,150,890 (10.91 pence per share). The dividends were paid in two payments prior to being admitted to trading on the London Stock Exchange's main market for listed securities on 3 December 2007.  The dividends paid during the year ended 31 March 2007 were £4,915,600 (2.25 pence per share).

The Directors have decided to recommend a final dividend of 2.160 pence per share in respect of the year ended 31 March 2008, subject to shareholder approval.

5 CALLED UP SHARE CAPITAL

The two classes of share authorised as at 1 April 2007 ranked pari passu in all respects save that the 'A' ordinary shares were subject to a mandatory transfer upon the termination of the shareholder's employment. On 23 August 2007, a resolution was passed with the effect that all issued and unissued 'A' ordinary shares were converted to ordinary shares. On 15 November 2007, a resolution was passed with the effect that, on admission to the London Stock Exchange's main market for listed securities, all issued and unissued ordinary shares of 10p were each split into 400 ordinary shares of 0.025p.

The Group has set up an Employee Benefit Trust to hold shares to be used to meet future liabilities relating to the Group's share option plans. Under IFRS the Employee Benefit Trust is considered to be under de facto control of the Group, and has therefore been consolidated into the Group. As at 31 March 2008, the Employee Benefit Trust held 168,287 ordinary shares of 0.025p in Record plc.

  Other information

This announcement may contain certain 'forward-looking statements' with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words 'believes', 'intends', 'expects', 'plans', 'seeks' and 'anticipates', and words of similar meaning, are forward-looking.

By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond the Group's control including among other things, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally, the policies and actions of regulatory authorities, the impact of competition, inflation and deflation, the timing, impact and other uncertainties of future acquisitions or combinations with relevant industries, and the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which the Group operates.

As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the Group's forward-looking statements. The Group undertakes no obligation to update the forward-looking statements contained in this announcement. Nothing in this announcement should be considered as a profit forecast.