Polar Capital Holdings plc

Hello, I'm Gavin Rogerson, Chief Executive of Polar Capital, and I, alongside our Chief Financial Officer, Samir Ayoub, will present an overview of our interim results to 30 September 2024. Six months ago, we reported signs of a more positive outlook for Polar Capital, with quarter one of the calendar year being the first quarter of net inflows in eight, and quarter two following suit. This optimism has continued into the new financial year, with net inflows in the first six months of the financial year reaching £472 million. While we are constructive on the outlook, we would caution that challenges remain and the visibility on further redemptions are unclear, with the most recent quarter seeing net outflows. But with the UK budget now published and the US election completed, there is now less uncertainty for equity managers and we expect sentiment to improve. Of particular note during the period were inflows into our emerging markets and Asia strategies who have seen strong investor demand. September also saw the launch of our new international small company fund for the US market. At the midway point of the financial year, I am pleased to report that average AUM increased to $22.4 billion, 15% higher than the comparative interim period. Core operating profit is up 21%, and adjusted diluted earnings per share have increased 42%. Given that backdrop, we have held our interim dividend at a covered 14p per share. Pleasingly, performance has improved over the period, with the majority of our funds outperforming their benchmarks since inception and also ranking in the top two quartiles versus their Lipper peers. Looking at the percentage of our USITS AUM by quartile rank, we can see a marked improvement, with 90% in the top two quartiles over one year, compared to 73% a year ago. Similarly, over three years, the number has increased to 77% from 48%. Following a period of inflows and positive market movement, AUM reached $22.7 billion as at the end of September, with the average AUM for the financial year to date standing at $22.4 billion. More recently, the AUM increased further to $23.9 billion as at 8 November. Net inflows have been dominated by the emerging market stars and Asia-style strategies, although we have also seen inflows into insurance, Japan value and healthcare, particularly the biotech fund. Net outflows from the technology team have moderated and we remain optimistic on the demand for the technology and artificial intelligence funds going forward. September and October, outflows were elevated due to uncertainty around the US election and the impact of the UK budget. Looking at gross and net subscriptions, we can see strong gross flows for the technology team, although this was not enough to offset the redemptions. Similarly, the UK value and team saw sizable gross inflows, but could not offset the gross outflows. Pleasingly, we can see gross inflows and therefore investor demand across most of the fund range.

The financial results for the period were underpinned by a 15% increase in our average AUM to 22.4 billion when compared to last year's interim period. This in turn translated into net management fee revenues for the first half of 87.6 million, which were also up by 15%. Our net management fee yield over the period measured 78 basis points, which is in line with our longer-term guidance on fee margins reducing by at least one to two basis points each year. Looking at the components of our profitability, the higher average AUM base meant core operating profits increased to 27.3 million, resulting in a core profit margin of 31%. Most of our performance fees crystallize in the second half of each year, so the absence of such profits at this stage is to be expected. Other income represents the profits and losses on our seed portfolio net of hedging costs and interest income on bank balances. During the period, interest income earned on cash balances has remained stable, and the mark-to-market P&L on seed and hedging has improved. Tying everything together, profit before tax amounted to 23.1 million, which is up 9% on the comparative period. Adjusting for the higher non-cash exceptional items this period translated into an adjusted diluted total EPS of 24.5p, which is a 42% increase from last year's interim results. Underpinned by improving core profits and the strength of our balance sheet, our confidence in the business means that we have announced a maintained first interim dividend of 14p, which is a 68% payout of adjusted core earnings for the interim period. Total operating costs for the period were 67.4 million, which is a 22% increase on the comparative period. As the chart shows, this increase is a combination of higher staff compensation and exceptional costs offset by a modest decline in other operating non-compensation related costs. Exceptional costs are items that are either non-recurring or non-cash and therefore excluded in determining adjusted diluted EPS. During the period, a non-cash impairment charge was taken against goodwill arising from the Dalton acquisition in addition to regular amortization of intangible assets. Total cash and seed portfolio holdings of around $115 million demonstrate the strength of our balance sheet. Our seeding programme supported nine funds, with the newly launched International Small Company Fund being seeded during the period. The capital position for the Group remains strong, with an overall surplus capital of $64 million. As the bar chart shows, the allocation of capital across seed investments, regulatory capital and general working capital remains broadly consistent compared to the last financial year. And finally, the framework applied for the use of capital remains unchanged as we look to balance returns to shareholders with growing and strengthening the business.

Turning to strategy and outlook, our stated strategy is growth with diversification, and I'm pleased to highlight a success story with our Emerging Markets and Asia team. Despite sentiment and demand towards emerging market equities being weak, having launched over six years ago, the team are now our third largest by assets, with AUM approaching 3 billion pounds. So far this financial year, we have seen net inflows of over 900 million pounds, illustrating the appeal of the team. The strategy has been well supported in the Nordic region, improving our geographical diversification, and is also available as a US mutual fund where we hope to raise further assets. Looking ahead, the pipeline for this team remains strong. Our latest addition to the fund range and an important milestone for our growth with diversification strategy is the addition of a new global smaller companies team led by Dan Boston. Dan joined us from Brown Capital, where at the time of his departure he was managing $3.5 billion in assets. Dan is based at our new Florida office and has hired two team members to help him manage our new US mutual fund, the International Small Company Fund, which was launched in September. Our U.S. business development team of four, who are based across the U.S., are actively meeting potential new investors for this team. To summarize, we remain constructive on the outlook for the business. Challenges remain, but we have a strong pipeline of potential inflows and also exposure to a number of the trends driving markets at present, such as technology and artificial intelligence. We have maintained the interim dividend at 14 P.A. share, signaling our confidence in the business. I hope you found this interesting, and thank you for taking the time to watch.