Polar Capital Holdings Plc · LSE:POLR
Polar Capital — H1 2019 Earnings Presentation
37 slides from Polar Capital's earnings presentation, Nov 30, 2018
Slide 1: Results Presentation – Six months to 30 September 2018
Results Presentation Six months to 30 September 2018 Gavin Rochussen, Chief Executive Officer John Mansell, Chief Operating Officer November 2018 This presentation is for one-on-one use with non-US professional investors only www.polarcapital.co.uk 30/11/2018
Slide 2: Contents
Results Presentation – Six Months To 30 September 2018 Contents • Highlights • Fund Flows & AuM • Fund Performance • Financial Review • Brexit and Regulation • Current Trading • Strategy & Outlook • Additional Information For non-US professional investor use only. Please refer to the Important Infor
Slide 3: Multi-boutique Asset Manager
Multi-boutique Asset Manager “Polar Capital is a specialist, investment led, active fund manager with a collegiate and meritocratic culture where capacity of investment strategies is managed to enhance and protect performance”. Focused on specialist, active investment strategies Producing performanc
Slide 4: Highlights
Highlights Continuing to deliver on our strategy AuM AuM growth growth driven driven by by performance performance and and net net flows flows Delivering growth and Positive inflows into Technology, Healthcare, Insurance, Convertibles, UK and North America increasing diversification Delivering attra
Slide 5: Net Flows
Net Flows Positive for the period £700m • Net inflows in the six months of £0.9bn £500m • Eight consecutive quarters of net inflows £300m • Market sell-off in October and reduction in £100m investor risk appetite will impact on industry flows (£100m) • Early subscriptions to the recently launched (£
Slide 6: Net Flows By Strategy
Net Flows By Strategy £1,000m • Net inflows into 75% of the strategies £800m • Japan remains in net outflows and ‘Value’ £600m style showing promise £400m • Emerging Market Income strategy net outflows in the six months significantly lower £200m than the prior six months. Performance has - improved
Slide 7: AuM Progression
AuM Progression Improving balance of AuM growth across strategies £5,000m £4,500m £4,000m £3,500m £3,000m £2,500m £2,000m £1,500m £1,000m £500m - Technology Japan European Healthcare Financials EM Income Convertibles North UK Absolute European UK Value Emerging L/S America Income Markets Stars 2015
Slide 8: Strategy Performance
Strategy Performance Annualised strategy performance against benchmark (3 year & SI) 25.0% 1st Quartile First bar = 3yr 2nd Quartile Second bar = since inception 20.0% 3rd Quartile 15.0% 10.0% 5.0% 0.0% -5.0% Source: Polar Capital factsheet data, 30 September 2018, Lipper quartile rankings as at 30
Slide 9: Strategy Performance: % of AuM in top quartile
Strategy Performance % of AuM in top quartile £11.6bn 99% 89% 68% 62% Total UCITS funds Top Quartile over 1 Top Quartile over 3 Top Quartile 5 Top Quartile Since Assets under Year Years Years inception Management Source: Polar Capital, 30 September 2018. Totals may not sum due to rounding. Past perf
Slide 10: Strategy Performance: Performance Against Benchmarks
Strategy Performance Performance Against Benchmarks Percentage of AuM that has outperformed benchmark • Significant percentage of Polar AuM has SI 97% outperformed benchmark over long periods 5yr 74% • Recent performance has improved 3yr 65% notwithstanding more volatile markets 1yr 68% 0% 20% 40% 6
Slide 11: Financial Review
Financial Review For non-US professional investor use only. Please refer to the Important Information at the end of this presentation. 11
Slide 12: Financial Highlights
Financial Highlights H1 2019 H1 2018 Change Average AuM £13.4bn £10.0bn +34% Net management fees £57.3m £41.4m +38% (excluding research) Net management fee yield 85bps 84bps +1bps Constant management fee yield Core operating profit £21.7m £12.0m +81% Core operating profit margin 38% 29% +9% Improved
Slide 13: Operating Costs
Operating Costs H1 2019 H1 2018 Change Salaries, bonuses and other staff Increase in headcount £11.3m £9.6m +18% costs Core distributions £13.2m £11.0m +20% Despite crystallisation of Healthcare team Core cash compensation costs £24.5m £20.6m +19% NIC on options £0.3m £1.0m -70% Share-based payments
Slide 14: Other Operating Costs
Other Operating Costs H1 2019 H1 2018 IT £2.6m £2.5m Rent and rates £1.3m £1.3m Professional fees £0.6m £0.6m Research £1.5m £0.0m MIFID II impact Insurance and regulation £0.2m £0.2m Travel and entertainment £0.8m £0.7m Staff recruitment £0.2m £0.0m Irrecoverable VAT £0.6m £0.6m Sponsorship/PR/Conf
Slide 15: Cash And Investments
Cash And Investments H1 2019 H1 2018 Cash £60.6m £49.9m Significant cash resources Investments £9.2m £8.8m UK ARF Seed International Alpha - £4.4m European Income £8.9m £8.8m EM Stars £7.1m - China Stars £7.6m - Strategic seeding programme China Mercury £3.8m - Japan Value £7.8m - Miscellaneous £0.3
Slide 16: Regulatory Capital
Regulatory Capital H1 2019 H2 2018 Shareholder funds £83.9m £87.7m Less: deferred tax and capital reserves £(8.1)m £(3.1)m Tangible capital £75.8m £84.6m Less: dividend provision £(7.2)m £(20.0)m Qualifying capital £68.6m £64.6m Regulatory capital £(10.0)m £(6.0)m Material holdings requirement £(37.
Slide 17: Dividend
Dividend • 8.0p dividend to be paid in January 2019 (2018: 6.0p) – Calculated according to the usual metric of 50% of the first half’s core earnings – Percentage increase year-on-year should not be taken as any guide in respect of final dividend 22.0p • Total annual dividend 19.5p 19.5p 19.5p – Tota
Slide 18: Preference Share Crystallisation
Preference Share Crystallisation Proposition • Initially deliver 45% interest in AMC profits + 60% performance fees • AMC interest able to be exchanged for Polar equity • Formula is driven by rolling relative 3 year AMC profit contribution • Designed to be EPS accretive: more costs saved than equity
Slide 19: Brexit
Brexit • AMF approval obtained for French office Distribution and Client Servicing • Spanish and German branches established • Sales presence in Paris • US and European activities already in existence Fund Management • ESMA and FCA cooperation agreement expected • Contingencies prepared Support and
Slide 20: Current Trading
Current Trading • Market sell-off in October has impacted AuM • AuM at 31 October 2018 stood at £13.6bn • Average AuM for six months to 30 September 2018 was £13.4bn • Performance fee accrued in funds not crystalized as at 31 October 2018 amounted to £23.3m (30 September - £32.5m) • Market volatilit
Slide 21: Strategy & Outlook
Strategy & Outlook For non-US professional investor use only. Please refer to the Important Information at the end of this presentation. 21
Slide 22: Market Perspective: Global indices vs volatility
Market Perspective Global indices vs volatility 30% • US equities and technology indices 25% outperformed 20% • UK and Emerging Market indices under performed 15% 10% • Increased volatility in January 2018 due to monetary tightening in US 5% • Increased volatility during October/November 0% with the
Slide 23: Areas Of Strategic Focus
Areas Of Strategic Focus Growth and diversification FY13 – FY18 Today and Looking Ahead • Diversification of AuM by • Increased exposure to Emerging geography and strategy Markets with the recent launch of Emerging Markets Stars Funds • Focus on building a balanced business • Add complementary Globa
Slide 24: Strategy: Investment Strategies
Strategy: Investment Strategies Continue to add complementary strategies and capacity Areas of focus: How? • Add complementary Global/International equities capability that will appeal to institutional investors Recruitment – This could include sub-sets of the above such as EAFE benchmarked funds, I
Slide 25: Strategy: Distribution
Strategy: Distribution Diversification of distribution by channel and geography Areas of focus: • Building the institutional channel – This will follow, or progress in tandem with, the addition of ‘institutional’ type investment strategies • Increase US client exposure over time • Increase distribut
Slide 26: Outlook
Outlook Active speciality strategies Continued focus on are well suited to more balancing the earnings volatile markets contribution Continue to be very selective More to be achieved on with pipeline of prospective diversification teams Fund performance generally holding up despite challenging marke
Slide 27: Thank you – Questions?
Thank you Questions? For non-US professional investor use only. Please refer to the Important Information at the end of this presentation. 27
Slide 28: Additional Information
Additional Information For non-US professional investor use only. Please refer to the Important Information at the end of this presentation. 28
Slide 29: Current Investment Strategies
Current Investment Strategies Technology AuM: £4.4bn Japan AuM: £983m Established: 2001 Funds managed: Established: 2001 Funds managed: Typical number of positions: 50-140 • Technology Trust Typical number of positions: 45-100 • Japan (UCITS) Team size: 7 • Global Technology (UCITS) Team size: 5 • J
Slide 30: Current Investment Strategies
Current Investment Strategies Convertibles AuM: £583m North America AuM: £2.5bn Established: 2010 Funds managed: Established: 2011 Funds managed: Typical number of positions: 50-80 • Global Convertible (UCITS) Typical number of positions: 40-60 • North American (UCITS) Team size: 5 Team size: 4 Year
Slide 31: Current Position
Current Position Lipper figures for long and alternative UCITS – as at 30 September 2018 1 Year 3 Years 5 Years Since AuM £m Percentile Percentile Percentile Inception Japan (I JPY) 784 73 32 58 8* 19/10/2001 Japan Value (S JPY) 19 53 23 56 34 31/10/2012 Healthcare Opportunities (I USD) 1,374 10 24
Slide 32: Alternative Strategies
Alternative Strategies As at 30 September 2018 Annualised returns Strategies Inception date YTD 3 years 5 years Inception Europe Long/Short (AX EUR) 1 August 2003 4.64% 2.24% 3.20% 8.42% UK Absolute Equity (GBP I) 29 September 2014 11.81% 22.12% N/A 23.40% Global Convertible 31 December 2015 6.13% N
Slide 33: Capacity
Capacity Current estimated capacity (beta adjusted) Financials Trust Current AuM: £14.7 Bn Healthcare Trust Remaining Capacity: £19.7 Bn Biotech 1 Total: £34.4 Bn Forager Japan Value 1 Tech A&AI 2 Income Opportunities 1 Global Convertible 1 GEM Income 2 JapanEquity UK Absolute 1 Japan 2 UK Value Opp
Slide 34: AUM Analysis
AUM Analysis AUM split by strategy Long only 90.0% Alternative 10.0% Investment Trusts 16.7% Open Ended Funds 83.4% AUM split by business unit Technology 29.8 North American 17.3 Healthcare 14.7 Financials 13.7 Japan 6.7 UK Value 5.4 UK Absolute Return 4.5 Convertibles 4.0 European (long/short) 1.6
Slide 35: AUM Analysis
AUM Analysis Investor mix by geography UK 67.2% Europe 29.9% Other 1.8% USA 1.1% Investor mix by holdings Bank 24.6% Polar Investment Trusts 16.7% Private Wealth Manager 15.8% Asset Manager 15.8% Platform 13.8% Fund Of Funds 6.4% Pension Fund/Foundation 0.9% Other 1.4% Consultants 1.4% Family Office
Slide 36: Fund Flows And AuM
Fund Flows And AuM AuM profile over five years £ 14.7bn £15.0 £14.0 £13.0 £ 12.0bn £12.0 £11.0 £ 10.6bn £10.0 £9.0 £8.1bn £7.2bn £9.3bn £7.6bn £7.9bn £ 6.9bn £8.0 £6.2bn £7.1bn £7.0 £6.0 £4.7bn £5.0 £4.0 £3.0 £2.0 £1.0 £- -£1.0 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Ma
Slide 37: Important Information
Important Information Polar Capital House View 16 Palace Street This document has been produced based on Polar Capital research and analysis and represents our house view. All sources are Polar Capital unless otherwise stated. London SW1E 5JD Important Information The information provided in this pr
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