Preliminary Results for year

RNS Number : 0760O

Polar Capital Holdings PLC

23 June 2010

 



POLAR CAPITAL HOLDINGS plc

Unaudited Preliminary Group Results for the year ended 31 March 2010

23 June 2010

 "Assets under Management (AUM) $2.5billion at 31 March 2010, up 71% from the previous year end and up 33% from the level reported in our interim results at the end of September."

Highlights

·    The Company remained profitable despite difficult trading conditions

·    Significant recovery in AUM levels during second half of financial year

·    New Global Healthcare Investment Trust launched in June 2010, raising £89 million

Corporate financial highlights

·    Assets under management at 31 March 2010 up 71 % at US$2.5bn (2009: US$1.5bn)

·    Core operating profit, excluding performance fees, £0.02m (2009:£1.3m)

·    Pre-tax profits £3.1m (2009: £12.1m)

Shareholder financial highlights                 

·     Basic earnings per share 3.1p (2009: 12.1p); diluted earnings per share down 3.0p (2009: 11.3p) and adjusted* diluted earnings per share 3.8p (2009: 10.0p)

·     Dividends for the year maintained at 4.5p per share (2009: 4.5p)

·     Shareholders' funds of £36.1m (2009: £39.6m) including cash and investments of £39.4m (2009: £44.2m)

* Adjusted to exclude cost of share-based payments

Tim Woolley, Chief Executive, commented:

Our strong reputation, increasing assets under management and our proven financial strength, will increasingly be seen as an attractive destination for talented fund managers who are frustrated by the increasing bureaucracy of the large organisations and who wish to branch out into a more rewarding and entrepreneurial environment.

For further information please contact:
Tim Woolley,  Chief Executive or John Mansell,  Chief Operating Officer  [phone]
Financial Dynamics
Ed Gascoigne-Pees [phone] / Sue I Ong  [phone] Numis Securities Simon Blank (Nominated Adviser) / Charles Farquhar (Corporate Broking) [phone]

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 currently has 48 employees of whom 21 are investment professionals managing 9 funds and 9 managed accounts. These funds have combined assets under management of $2.5bn as at 31 March 2010.

AUM  by funds/strategy

	31 March 2010		31 March 2009
Japan	$682m		$306m
Technology	$815m		$407m
Europe	$504m		$340m
Global emerging markets	-		$45m
UK	$206m		$95m
Macro	$245m		$219m
Healthcare	$78m		$64m
Total*	$2,530m		$1,476m

*above historic analysis excludes a single sub-advisory US equities account

Analysis of changes in asset types for the twelve months to 31 March 2010

AUM movement 12 months to 31 March 2010 Long Hedge Advisory Total As at 31 March 2009 $746m $699m $35m $1,480m Performance and currency movements $419m     $55m $5m $479m Net subscriptions $410m $253m - $663m Net outflows from closed funds - $(52)m $(40)m $(92)m Total AUM at 31 March 2010 $1,575m   $955m - $2,530m

CHAIRMAN'S STATEMENT

Results

I am pleased to report a significant increase in our Assets under Management (AUM) to $2.5billion at 31 March 2010, up 71% from the previous year end and up 33% from the level reported in our interim results at the end of September. The growth in assets has been through a combination of absolute performance from our funds and a significant recovery in client inflows over the second half of the fiscal year.

The recovery in AUM levels in the latter part of our financial year brought us into profitability at the core operating profit level in the second half and enabled us to break even for the year as a whole, recovering the loss recorded over the first six months of the year. Pre-tax profits, which also include performance fees of £2.5m, interest and other income of £1.2m, amounted to £3.7m before share based payments, down from the previous year's £11.1m., primarily as a result of a decline in the level of performance fees due mainly to the absence in 2010 of the contribution received in 2009 from the closed Paragon Fund.

However, it is encouraging that we remained profitable over the year despite the severity of the turmoil in markets and that for the ninth year in succession Polar Capital has earned performance fees.

Our balance sheet remains strong with gross cash and investments of £39.4m.

Market background

The global equity markets began their recovery in the closing weeks of our previous fiscal year and continued their upward path through to the end of our financial year.

The FTSE 100 Index was up 44.7% over the fiscal year. Similar patterns of recovery were seen across most of the major developed markets with the Standard and Poor's 500 Index in America up 46.5% and the Japanese Nikkei-225 Stock Average up 36.8% over the period, while some of the  emerging markets posted even greater gains.

A combination of very low interest rates and aggressive injections of liquidity by the governments of leading developed nations and China was sufficient to stabilise global markets and ensure a recovery in most major economies towards the end of our financial year.

The improvement in global equity markets eventually led to an improvement in confidence in our client base. The pressure on redemptions in the hedge fund world began to ease as the year progressed with the industry returning to positive net inflows in the first calendar quarter of 2010. Our own experience was consistent with that of the wider hedge fund industry with the redemption pressure easing by the summer and a return to positive inflows over the second half of our fiscal year.  

On the long only side net inflows picked up substantially in our core UK market with record retail sales being posted in the first calendar quarter of 2010. However, much of the inflows were in sectors of the market that we currently do not address. According to the Investment Management Association's industry data, significant inflows occurred in the Asia ex Japan, Global Growth and Global Emerging Markets. In the industry sub-sectors we have offerings in, the inflow data were less robust and only modest net inflows were seen in the Japan and technology and telecommunications sub-sectors. We were encouraged therefore by the positive flows we saw into our long only funds even though they were far from the most popular areas of the market.

Funds and performance

Performance over the period was on the whole encouraging. All our hedge fund products with the exception of the macro Discovery fund posted good absolute gains over the period consistent with their targeted returns. Our strongest performing fund, the Forager fund which focuses on European smaller companies, gained 31.5% over the period further cementing the team's excellent reputation. Inflows into the product were such that by the year end we had announced its closure to new inflows.

On the long only side three of our four funds were in the top half of their peer groups with only the healthcare fund slipping into the 3^rd quartile although their longer term record remains impressive. We saw particularly strong inflows into our award winning Japanese product which has been a top decile performer over 3 years, 5 years and since inception and into our Technology open ended fund, which continued its impressive run of performance ranking 7^th out of 60 funds over the period (source Lipper).

Dividends

The Board has declared two interim dividends in respect of the financial year to 31 March 2010.  The second interim dividend was paid early, in advance of the tax changes on 6 April 2010 and the Board announced at that time it would not pay any further dividends in respect of the last financial year. The total dividend amounted to 4.5p per share, the same as we paid last year and although this was not fully covered by earnings, your Board considered the payment of such a dividend appropriate on account of both our quiet  optimism about the health of our business and the high levels of cash on our Balance Sheet.

Outlook

Polar Capital has weathered the turmoil in markets well with our reputation intact, with a team of proven successful fund managers and with good performance across most of our funds. We have managed to remain profitable despite the dramatic fall in AUM in the previous financial year and we have kept our balance sheet strong. With the recovery in our AUM levels over the second half, and supported by our strong infrastructure and systems, we feel encouraged about our competitive position  and we enter the new fiscal year in good financial shape. We believe therefore that we are well placed to grow the business in the year ahead, as your Chief Executive describes in his report.

The growth of the business is of course affected by what is happening in the markets. As recent weeks have shown with the fallout from the Greek debt crisis and the consequent concern about the stability of the Euro, there remain substantial economic and political issues for the markets to deal with and further weakness in markets cannot be ruled out. Whilst we remain confident in our own direction and strategy for growth we would expect the external environment to remain challenging during much of fiscal 2011.

Board changes

The Articles of Association require that any Director who did not stand for re-appointment at the two previous annual general meetings must offer themselves for re-appointment.  The majority of the Directors were appointed at the AGM in 2007, the first after the Company's shares were admitted to trading on AIM and therefore stand for re-appointment at this year's AGM with the exception of Mr Michael Thomas who was appointed at the AGM in 2008 and will therefore stand next year. 

Mr Charles Hale has indicated that he does not wish to stand for re-appointment at the AGM and will stand down as a Director.   On behalf of all the Directors I would like to pay thanks to Mr Hale who joined Polar Capital as Executive Chairman in 2002 and played a large role in building the business. Mr Hale stood aside as Chairman in 2007 but remained as a non-executive Director.

Annual General Meeting

The Annual General Meeting this year will be held on 9 September at 12.30pm at Cayzer House, 30 Buckingham Gate, London SW1E 6NN and I encourage all shareholders to attend as this will be an opportunity to meet the Directors. Full details of the meeting and the resolutions are contained in the separate notice of meeting sent to shareholders.

Tom Bartlam

Chairman

22 June 2010

CHIEF EXECUTIVE'S STATEMENT

The financial results and market background have been covered in the Chairman's statement and a more detailed breakdown of our financials is covered later in the Chief Financial Officer's report. I thought therefore I would use my report to look forward rather than back and outline our strategy for success over the coming year and beyond.

In the context of the UK wealth management industry Polar Capital is presently very small, and in the context of the global wealth management industry we are tiny. We believe though by continuing to focus on delivering clients funds with good performance we should be able to grow significantly over the next five years. Investment returns alone are not sufficient to ensure success especially following the turmoil in markets over recent years. Clients are also looking for high levels of service and support, operational robustness and integrity, independent risk control and strong compliance supervision. We have made significant investments in all these areas over the years and our financial strength ensures we will be able to continue to invest in such areas in the future.

I see three major avenues of growth for Polar Capital over the coming years:

§ Increase the assets in our existing products.

§ Increase the range of products offered by our existing teams.

§ Acquire and recruit additional investment teams.

Whilst we have been gratified by the inflows into a range of our products over the second half of the financial year, considerable further capacity exists in most of our funds. Across our hedge, absolute and open ended long funds we have only one fund that has reached its capacity and currently closed to further investment. That fund is our highly successful Forager long/short equity product focused on European small companies. Given potential liquidity issues in some of the smaller companies we have set a limit of $500m in this strategy - a level of assets which will not compromise our historically strong performance record. All our other open ended products have considerable further capacity.

We will therefore seek to increase our assets in these funds by further improving our distribution capability and increasing investor awareness of Polar Capital itself and the products we offer.

Since I took over in November we have reorganised our sales force on geographical lines with a focus on our three core markets - the UK, North America and Continental Europe. In addition to greater geographical focus we have added additional experienced sales resource to further penetrate these markets.

The second avenue for growth is to offer clients additional products from our existing teams. To this end we have over recent months been busy with the launch of our Global Healthcare Growth and Income Trust. Our experienced healthcare team sees a compelling investment opportunity with the healthcare stocks in the US at a 30 year low in relative valuation terms and a 20 year low in terms of ownership. The uncertainty over possible healthcare reform in the US which has clouded the sector is now being resolved and our team therefore sees an excellent opportunity for capital growth over the coming years. Many of the large healthcare stocks are now supported by attractive yields which will provide a useful income stream on the Trust in addition to the prospect of capital growth.

Despite the very challenging market conditions we raised £89m for the new trust. This is a terrific achievement and is a strong vote of confidence from our clients in the product, the team and Polar Capital. We look forward to launching additional products in the years ahead.

The third avenue for growth is the acquisition and recruitment of new investment teams to address the large areas of the market that we currently do not cover. At present our product offering addresses only a small percentage of our clients' portfolio needs. If we examine one area of the UK wealth management industry, namely the retail sector as defined by the Investment Management Association (IMA), one is able to see the size of the opportunity ahead. The IMA estimated that at the end of March 2010 total funds under management (FUM) in the UK retail sector was £511bn. The IMA data breaks down the total FUM into various sub-sectors and if we focus on just the equity sub-sectors, they account for £332bn of the £511bn. Of the 18 equity sub-sectors we currently only have product in 4 of them and the total assets in these 4 sectors totals £34.2bn. Thus at present we only address about 10% of the market opportunity in equities in the UK retail sector.

Given we have established relationships with numerous clients in the UK through our present albeit limited product offering, it makes perfect sense for us to seek to expand our relationship with these clients by offering them additional investment product. From a client perspective, given the market turbulence and regulatory issues over recent times, they need to do increasing levels of due diligence not just on specific funds but on the management company that supports that fund. It is natural therefore for clients to look favourably on good new funds offered by firms with whom they have already an existing and successful relationship.

We will therefore actively be looking to expand our product range over the coming year through the acquisition and recruitment of additional investment teams targeting some of the IMA sub-sectors that we currently do not address.

We believe with our strong reputation, increasing assets under management and our proven financial strength, we will increasingly be seen as an attractive destination for talented fund managers who are frustrated by the increasing bureaucracy of the large organisations and who wish to branch out into a more rewarding and entrepreneurial environment.

Over the last six months we have been active on the recruitment front. The timing of the arrival of new investment talent is difficult to predict but I am hopeful that the efforts of the last six months will bear fruit in the coming financial year. I believe a number of managers will find our vibrant culture, attractive remuneration terms and our evolving position in the marketplace attractive.

As the Chairman has noted we expect the external environment to remain challenging with global equity markets remaining volatile until there is greater clarity on the sovereign debt issue in Europe and its impact on the Euro. Despite these headwinds I look forward to our new year with confidence and to getting on with implementing our strategy for success.  I believe we have the foundations in place for an exciting future.

I would like to thank our clients for their continuing support through these challenging times in global markets, our staff for all their excellent work over the last year and our shareholders for their continuing enthusiasm and support.

Tim Woolley

Chief Executive

22 June 2010

CHIEF OPERATING OFFICER AND FINANCE DIRECTOR REPORT

Profit and Loss account

The Group made a pre tax and pre share based payment profit for the year of £3.7m (2009: £11.1m). The table below summarises the break down of the source of the profits:

	Year to 31 March 2010	Year to 31 March 2009
Core operating profit	£-	£1.3m
Performance fee profit	£2.5m	£8.9m
Interest and similar income	£1.2m	£0.9m
Profit before tax and before share based payments	£3.7m	£11.1m
Share based payments	£(0.6)m	£1.0m
Profit before tax	£3.1m	£12.1m

The fall in core operating profitability was a product of the reduction in Assets Under Management ("AUM").  The group's AUM at the start of the year was $1.48bn compared to $3.14bn at March the previous year and the average AUM over the year was $1.93bn compared to $2.67bn the year before.

The reduction in average AUM in the year led to a fall in gross management fee revenues of £5.3m (including hedging gains and losses); this with the rise in cost of sales (trail commission) of £0.3m led to a fall in net revenues of £5.6m.  The fact that core profits only fell £1.3m was a product of pre-performance fee costs falling by £4.3m, to £14.3m from £18.6m in 2009.   The fall in total costs from £40m in 2009 to £18m in 2010 is explained by a number of factors. The exceptional performance fees  paid in 2009 were not repeated in 2010 and  the reduction in other operating costs benefited from a lack of investment losses, a rent free period on our premises and a general reduction in overheads as overseas offices and  funds were closed.

The table below summarises the break down of the make up of costs:

	Year to 31 March 2010	Year to 31 March 2009
Salaries and bonuses	£8.1m	£7.7m
Core distributions	£1.6m	£2.2m
Other staff costs	£0.4m	£0.8m
Core compensation costs	£10.1m	£10.7m
Other operating costs	£4.2m	£7.9m
Pre performance fee costs	£14.3m	£18.6m
Performance fee interests	£3.7m	£21.4m
Operating costs	£18.0m	£40.0m

Share-based payments

The face of the consolidated income statement includes a line titled "share-based payments" which accounts for a charge of £0.6m (2009: a credit of £1.0m). The figures can be broken down as follows:

Analysis of the cost of share-based payments	Year to 31 March 2010	Year to 31 March 2009
IFRS cost attributed to preference shares	£0.4m	£0.2m
IFRS credit attributed to team departing and changes to est. shares crystallising	£(0.1)m	£(1.4)m
IFRS cost attributed to conventional options	£0.3m	£0.2m
Total cost of share-based payments	£0.6m	£(1.0)m

The preference shares, in the event that a manager is successful, deliver to their holder equity in the Group and are designed to deliver simultaneously to the Group an increase in profitability due to the sacrifice that a manager makes as they give up their interest in the revenues generated from their funds.

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

	Year to 31 March 2010	Year to 31 March 2009
Diluted earnings per share*	3.0p	11.3p
Impact of share-based payments	0.8p	(1.3)p
Adjusted diluted earnings per share	3.8p	10.0p

* The EPS figures have been calculated to reflect the consideration receivable when options vest.

Preference shares

A separate class of preference shares is issued by Polar Capital Partners Limited to each of the leading fund managers. 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 core net management fee profitability of 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 March 2010 (as well as 2009) no preference shares vested. As at March 2010 four sets of these preference shares remain and of these two sets have the ability to call for a conversion where the call has to be made on or before 30 November 2010 if conversion is to take place from 31 March 2010.

Balance Sheet and cash

The Group generated £1.0m of cash in the year from its operating activities (2009: £9.4m). In the year £2.1m of tax and £5.7m of dividends were paid. The quantum of dividends increased as both interim dividends were paid in the financial year.

During the year the Group made a £8.1m net investment into its funds, raising its investment in funds that it manages to £19.7m (2009: 11.6m). At the balance sheet date there was £0.4m of unrealised profits in such investments.

The result of these activities is that at the year end the sum of available-for-sale financial assets plus cash was £39.4m.

Business Risk

There is a range of risks and uncertainties faced by the Group which are more fully described in the Director's Report. One of 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 ICAAP process.  On the basis of such processes and the significant liquid assets underpinning the balance sheet, the Directors consider that the adoption of a going concern basis is appropriate.

John Mansell

Chief Operating Officer and Finance Director

22June 2010

Consolidated Income Statement
for the year ended 31 March 2010
	Unaudited
	Year ended		Year ended
	31 March 2010		31 March 2009
	£'000		£'000
Revenue	21,701		51,056
Interest receivable and similar income	1,197		888
Gross income	22,898		51,944
Cost of sales	(1,134)		(852)
Net fees	21,764		51,092
Operating costs before share based payments	(18,001)		(39,989)
Profit on ordinary activities before share based payments	3,763		11,103
Share based payments	(633)		1,008
Profit on ordinary activities before taxation	3,130		12,111
Taxation	(970)		(3,740)
Profit on ordinary activities after taxation	2,160		8,371
Basic earnings per ordinary share	3.06p		12.06p
Diluted earnings per ordinary share	2.97p		11.31p
Adjusted diluted earnings per ordinary share	3.84p		9.95p
All the above revenue and expense items arose from continuing operations

Consolidated Statement of Comprehensive Income
for the year ended 31 March 2010
	Unaudited
	Year ended		Year ended
	31 March 2010		31 March 2009
	£'000		£'000
Profit for the financial period	2,160		8,371
Other comprehensive income
(Loss)/gain on the revaluation of available-for-sale financial assets	(104)		670
Deferred tax effect	29		(188)
	(75)		482
(Loss) on the fair  valuation of hedging contracts	(248)		(47)
Total comprehensive income for the year, net of tax	1,837		8,806

Consolidated  Balance Sheet
at 31 March 2010	Unaudited
	As at		As at
	31 March 2010		31 March 2009
	£'000		£'000
Fixed assets	51		162
Available-for-sale financial assets	19,693		11,655
Deferred tax assets	220		3
Total non-current assets	19,964		11,820
Current assets
Receivables	3,949		7,184
Cash at bank and in hand	19,706		32,566
Total current assets	23,655		39,750
Total assets	43,619		51,570
Non-current liabilities
Deferred tax liabilities	127		162
Current liabilities
Other Financial liabilities	248		-
Trade and other payables	6,215		9,809
Current tax liabilities	896		1,981
Total current liabilities	7,359		11,790
Total Liabilities	7,486		11,952
Net assets	36,133		39,618
Capital and Reserves
Called up share capital	1,877		1,827
Share premium account	15,268		15,097
Investments in own shares	(1,392)		(871)
Other reserves	585		820
Retained earnings	19,795		22,745
Total Shareholders' funds - equity interests	36,133		39,618

Consolidated statement of changes in equity
for the year ended 31 March 2010
		Share					Total
	Share	premium	Own	Capital	Other	Retained	shareholders'
	capital	account	shares	reserves	reserves	earnings	funds
	£ ' 000	£ ' 000	£ ' 000	£ ' 000	£ ' 000	£ ' 000	£ ' 000
As at 1 April 2008	1,786	15,097	(558)	447	76	21,012	37,860
Profit for the year	-	-	-	-	-	8,371	8,371
Other comprehensive income	-	-	-	-	435	-	435
Total comprehensive income	1,786	15,097	(558)	447	511	29,383	46,666
Dividends	-	-	-	-	-	(5,630)	(5,630)
Issue/(redemption) of shares	41	-	(313)	(43)	-	-	(315)
Share-based payment	-	-	-	-		(1,008)	(1,008)
Deferred tax in respect of employee share options	-	-	-	-	(95)	-	(95)
As at 1 April 2009	1,827	15,097	(871)	404	416	22,745	39,618
Profit for the year	-	-	-	-	-	2,160	2,160
Other comprehensive income	-	-	-	-	(323)	-	(323)
Total comprehensive income	1,827	15,097	(871)	404	93	24,905	41,455
Dividends	-	-	-	-	-	(5,743)	(5,743)
Issue/(redemption) of shares	50	171	(521)	(41)	-	-	(341)
Share-based payment	-	-	-	-	-	633	633
Deferred tax in respect of employee share options	-	-	-	-	129	-	129
As at 31 March 2010	1,877	15,268	(1,392)	363	222	19,795	36,133

Consolidated  Cash Flow Statement
for the year ended 31 March 2010
	Unaudited
	Year to 31 March 2010		Year to 31March 2009
	£'000		£'000
Cash generated from operating activities
Cash generated from operations	1,024		9,482
Tax paid	(2,149)		(4,179)
Net cash inflow generated from operating activities	(1,125)		5,303
Financing activities
Equity dividends paid	(5,743)		(5,630)
Issue of share capital	180		-
Payments in relation to investment in own shares	(521)		(463)
Receipts in relation to disposal of own shares	-		150
Net cash (outflow) from financing activities	(6,084)		(5,943)
Investing activities
Interest received and similar income	1,197		888
Purchase of property, plant and equipment	(5)		(29)
Proceeds from sale of available-for-sale financial assets	16,684		3,177
Purchase of available-for-sale financial assets	(23,527)		(2,156)
Net cash outflow (used in) /from investing activities	(5,651)		1,880
Net (decrease) \ increase in cash and cash equivalents	(12,860)		1,240
Cash and cash equivalents at start of period	32,566		31,326
Cash and cash equivalents at end of period	19,706		32,566

NOTES

Principal accounting policies

Polar Capital Holdings plc is a public limited company registered in England and Wales. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.

Basis of preparation

The consolidated financial statements have been prepared in accordance with 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, as modified by the revaluation of available-for-sale financial assets and derivative financial instruments.

The Company financial statements have been prepared in accordance with UK GAAP and under the historical cost convention.

At the date of authorization of these financial statements IFRS 9 "Financial Instruments" was in issue but not yet effective. The Group has not adopted this standard and does not anticipate it will have any material impact on these financial statements when they come into effect.

Basis of consolidation

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

Fixed assets

Fixed assets are stated at cost, less depreciation and accumulated impairment provisions. Depreciation is provided at rates calculated to write off the cost of each asset over its expected useful economic life. The carrying value of property, plant and equipment is assessed annually and any impairment is charged to the income statement.

Depreciation is charged on a straight line basis as follows:

Leasehold improvements 25%

Computer equipment 33%

Office furniture 33%

Financial assets and liabilities

Financial assets and financial liabilities are recognized on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

Financial assets are initially recognised at fair value, being the consideration given, together with any acquisition costs associated with the asset. The Group's investments in the funds that it manages are designated as "available-for-sale" financial assets and are included in non-current assets. Such assets are subsequently carried at fair value, with any gains or losses arising from changes in fair value being recognised as other comprehensive income in other reserves. Available-for-sale financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. When derecognition occurs, a realised gain or loss is recognised in the income statement, calculated as the difference between the net sales proceeds and the original cost of the financial asset. Any fair value gains or losses previously recognised directly in other reserves are recycled into the income statement as part of this calculation of the gain or loss arising on derecognition.    

The Group assesses at each reporting date whether there is objective evidence that an investment is impaired. In the case of a financial asset classified as available-for-sale, a significant or prolonged decline in the fair value of the financial asset below its cost is considered as objective evidence that the asset is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in the income statement -  is removed from other reserves and recognised in the income statement. Impairment losses recognised in the income statement, if subsequently reversed, are taken through other comprehensive income and not the income statement.

Derivative financial instruments

Forward currency contracts are used to hedge the risks associated with foreign currency fluctuations. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.

Forward contracts used for currency hedging purposes are treated as cash flow hedges and the effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is taken to the income statement. Amounts taken to equity are transferred to the income statement when the hedged items affect profit or loss.

Gain or losses realised on hedging contracts are recognised against revenue in the income statement.

Trade receivables

Trade receivables are initially recognised at fair value, and are subsequently carried at the lower of original fair value and their recoverable amount.

Pensions

The Group operates a defined contribution money purchase pension scheme covering the majority of its employees. The costs of the pension scheme are charged to the profit and loss account in the period in which they are incurred.

Cash and cash equivalents

Cash and cash equivalents comprise cash at banks and in hand, deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above.

Trade payables

Trade payables are initially recognised at fair value and subsequently at amortised cost.

Income recognition

Revenue

Revenue represents fees receivable (excluding value added tax) during the period for discretionary investment management and advisory services. Management fees and performance fees are recognised when receivable. Performance fees, which are based on the investment performance achieved for certain client portfolios relative to predefined benchmarks, are recognized as revenue at the end of the period over which the performance is measured.

Interest receivable and similar income

Interest receivable is recognised on an accruals basis using effective interest methods. Dividend  income from investments is recognised on the date that the right to receive payment has been established.

Cost of sales

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

Operating leases

Amounts payable under operating leases are charged to the income statement on a straight-line basis over the lease term.

Taxation

The income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Income tax relating to items charged or credited directly to equity is also dealt with in equity.

Deferred tax is recognised on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.

Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available, against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Share-based payments

Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions at the date of grant. The fair value determined at the grant date of the equity-settled share-based instrument is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest and adjusted for the effect of non market-based vesting conditions)

Foreign currency/ translation

The individual financial statements of each subsidiary are presented in the functional currency of the Group. Balances are therefore reported in Sterling, which is the functional currency of all Group companies, and has been used as the presentation currency for the consolidated financial statements.

Judgements and key sources of estimation uncertainty

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities are as follows:

Impairment of available for sale financial assets

The Group reviews any diminution in value to available for sale financial assets, and determines if this is diminution is permanent and therefore an impairment of the asset.

Deferred tax

Deferred tax is recognised based on differences between the carrying value of assets and liabilities and the tax value of assets and liabilities. Deferred tax assets are only recognised to the extent that the Group estimates that taxable profits will be available.

Share based payments

The estimation of share based payment cost requires the selection of an appropriate valuation model, consideration on appropriate input criteria for the model and an estimation as to the number of awards that will vest.

Earnings per ordinary share

The calculation of basic earnings per ordinary share is based on the profit for the year of £2,160,011 (2009: £8,371,134) and on 70,588,270 (2009: 69,411,145) 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 £2,160,011 (2009: £8,371,134) and 72,675,335 (2009:73,996,814) ordinary shares, being the weighted average number of ordinary shares allowing for all options of  9,237,542 2009:4,479,608) which are dilutive and shares issued on the last day of the year and not yet issued under a crystallised event of nil (2009:3,259,178)

The calculation of adjusted earnings per ordinary share is based on profit for the year of £2,160,011 but adjusted for the cost of share-based payments of £633,322 (2009: profit of £8,371,134 adjusted for the credit of share-based payments of £1,008,583) and 72,675,335 (2009: 73,996,814) ordinary shares being the weighted average number of ordinary shares allowing for all dilutive options and shares not yet issued under a crystallisation event.

As at 31 March 2010, the fully diluted number of ordinary shares which would be in issue was 81,844,387 shares, if all outstanding options were exercised and all shares that are due as the result of a crystallisation event were issed.  

Operating segments
The Group's assets under management are managed as eight business units but the Group only has one class of business, being the provision of investment management and advisory services. The Group's operations are in London, with a small office in Tokyo, and it therefore has only one geographic location.
Geographical analysis of income (based on the residency of source)
	Unaudited Year to 31-Mar-10	Year to 31-Mar-09
	£'000	£'000
UK	3,328	3,008
Ireland	5,507	3,339
Cayman	11,470	44,859
USA	583	1,074
Switzerland	433	-
Other	116	604
Profit/ (loss) on hedging	264	(1,828)
	21,701	51,056
Analysis of income by type of fees	Unaudited Year to 31-Mar-10	Year to 31-Mar-09
	£'000	£'000
Investment management fees	15,137	22,350
Investment advisory fees	44	216
Investment performance fees	6,256	30,318
Profit/ (loss) on hedging	264	(1,828)
	21,701	51,056
Analysis of income by business unit	Unaudited Year to 31-Mar-10	Year to 31-Mar-09
	£'000	£'000
Technology team	4,334	3,526
Japanese team	3,183	2,806
UK team	1,793	1,665
European team	9,656	10,807
Macro-currency team	1,653	3,365
Healthcare team	484	543
Emerging markets	334	2,085
Global Opportunities team	-	28,087
Profit/ (loss) on hedging	264	(1,828)
	21,701	51,056
Analysis of assets under management	Unaudited Year to 31-Mar-10	Year to 31-Mar-09
	£'m	£'m
Technology team	815	411
Japanese team	682	306
UK team	206	95
European team	504	340
Macro-currency team	245	219
Healthcare team	78	64
Emerging markets	-	45
	2,530	1,480

Status of preliminary announcement

The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 March 2010 or 2009.   It is prepared on the same basis as the Company's statutory accounts for the year ended 31 March 2009. The statutory accounts for the year ended 31 March 2010 have not been delivered to the Registrar of Companies, nor have the auditors yet reported on them. 

The statutory accounts for the year ended 31 March 2010 will be finalised on the basis of the information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies.

The statutory accounts for the year ended 31 March 2009 have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

Copies of Report and Accounts

The full annual report and accounts will be posted to shareholders in early July 2010 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 12.30pm on 9 September 2010 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.

 

END

 

 

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