TIDMREC
RNS Number : 2591I
Record PLC
16 June 2017
PRESS RELEASE
Record plc
16 June 2017
FINAL RESULTS ANNOUNCEMENT FOR THE YEARED 31 MARCH 2017
Record plc, the specialist currency manager, today announces its
audited results for the year ended 31 March 2017.
Financial headlines:
-- AUME[1] $58.2bn at 31 March 2017 (up 10%)
-- AUME GBP46.6bn at 31 March 2017 (up 26%)
-- Revenue of GBP23.9m (up 13%)
-- Profit Before Tax (PBT) of GBP8.7m (up 26%) and underlying
PBT of GBP7.9m (up 13%)
-- Operating profit margin of 36% (2016: 32%) and underlying
margin of 34% (2016: 33%)
-- Robust financial position with net assets of GBP41.6m at 31
March 2017 (2016: GBP37.7m)
-- Basic EPS of 2.91p per share (2016: 2.55p)
-- Proposed final ordinary dividend for the year is 1.175p per
share, giving a total ordinary dividend in respect of the year of
2.00p per share (2016: 1.65p)
-- Special dividend declared for the year of 0.91p per share
(2016: nil)
Key developments:
-- A turbulent political environment continues to provide
opportunities to engage both clients and potential clients in
respect of their currency objectives
-- Strong positive performance of the Multi-Strategy product,
which reaches the fifth anniversary of its live track record in
July 2017
-- Flexible and innovative solutions across both currency
hedging and return-seeking products continue to be key to
maintaining growth
-- Tailored products will require continued investment in
systems and people
-- Growth of 29% in Passive Hedging revenues, which now account
for 53% of management fees and cover the operating expenditure of
the business excluding variable remuneration
-- Revised capital policy, with a return of excess capital to
shareholders under consideration
Commenting on the results, Neil Record, Chairman of Record plc,
said:
"Since the financial crisis of 2008 and 2009, the Board's focus
has been on building a robust business by continuing to develop its
diverse suite of currency-related products and strategies, by
investing in our people and infrastructure, and by building a
strong and liquid balance sheet and regulatory capital buffer.
"This year, Record has reported its highest-ever AUME, increased
revenues and earnings, and further growth in revenue
diversification, with revenues from Passive Hedging now covering
all overheads excluding variable remuneration. Our balance sheet is
strong, with consolidated net assets of GBP41.6m, underpinned by
own cash[2] of GBP29.2 million, and comfortably in excess of our
regulatory capital requirements.
"The Board has decided that conditions are now right for a
change in our capital policy and is considering a return of
approximately GBP10 million of excess capital to shareholders, more
details of which will be provided to the market shortly.
"Furthermore, the Board is recommending an increase in the
ordinary dividend for the year of 21%, whilst also confirming its
previous intention of returning excess earnings over ordinary
dividends for the financial year to shareholders, by declaring a
special dividend equal to the excess of basic earnings over
ordinary dividends, equivalent to 0.91 pence per share to be paid
simultaneously with the final ordinary dividend.
"The current environment of uncertainty and change is seemingly
set to continue and will provide opportunities to engage with
clients, to understand their objectives, and to develop tailored
solutions. Record has the strategies, track records, operational
systems and most importantly the people to do so."
Analyst briefing
There will be a presentation for analysts at 9.30am on Friday 16
June 2017 at Cenkos plc offices: 6-8 Tokenhouse Yard, London, EC2R
7AS. 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
Neil Record - Chairman
James Wood-Collins -
Chief Executive Officer
Steve Cullen - Chief
Financial Officer +44 1753 852222
MHP Communications
Nick Denton, Ollie Hoare +44 20 3128 8100
Consolidated statement of comprehensive income
Year ended 31 March
2017 2016
Note GBP'000 GBP'000
----- --------- ---------
Revenue 3 23,928 21,134
Cost of sales (298) (221)
----- --------- ---------
Gross profit 23,630 20,913
Administrative expenses (15,067) (14,123)
----- --------- ---------
Operating profit 4 8,563 6,790
Finance income 112 143
----- --------- ---------
Profit before tax 8,675 6,933
Taxation 6 (1,540) (1,523)
----- --------- ---------
Profit after tax and total
comprehensive income for
the year 7,135 5,410
Profit and total comprehensive
income for the year attributable
to:
Non--controlling interests 819 (131)
Owners of the parent 6,316 5,541
----- --------- ---------
Earnings per share for
profit attributable to
the equity holders of the
Group during the year
Basic earnings per share 7 2.91p 2.55p
Diluted earnings per share 7 2.90p 2.54p
----- --------- ---------
Consolidated statement of financial position
As at 31 March
2017 2016
Note GBP'000 GBP'000
----- -------- --------
Non--current assets
Property, plant and equipment 10 881 81
Intangible assets 11 245 299
Investments 12 - -
Deferred tax assets 13 102 43
----- -------- --------
Total non--current assets 1,228 423
----- -------- --------
Current assets
Trade and other receivables 14 6,972 5,695
Derivative financial assets 15 53 106
Money market instruments with maturity > 3 months 16 18,102 13,020
Cash and cash equivalents 16 19,120 21,720
----- -------- --------
Total current assets 44,247 40,541
----- -------- --------
Total assets 45,475 40,964
----- -------- --------
Current liabilities
Trade and other payables 17 (3,013) (2,372)
Corporation tax liabilities 17 (804) (776)
Derivative financial liabilities 15 (48) (108)
Total current liabilities (3,865) (3,256)
Total net assets 41,610 37,708
----- -------- --------
Equity
Issued share capital 18 55 55
Share premium account 1,971 1,899
Capital redemption reserve 20 20
Retained earnings 34,785 31,715
----- -------- --------
Equity attributable to owners of the parent 36,831 33,689
Non-controlling interest 20 4,779 4,019
----- -------- --------
Total equity 41,610 37,708
----- -------- --------
Chairman's statement
The Board is recommending a 21% increase in ordinary dividend to
2.00 pence per share and a special dividend of 0.91 pence per
share.
Overview
The twelve months ending 31 March 2017 have proved to be
turbulent, with major political surprises, along with significant
economic and regulatory changes affecting the financial services
industry in general and foreign exchange markets in particular.
Exchange rates have reacted to political surprises, in some cases
markedly.
The UK's vote to leave the European Union in June caused a major
adjustment in foreign exchange markets with an immediate and
dramatic decrease in the value of sterling of 11% against the US
dollar, and weakness against all other major currencies in the year
ending 31 March 2017. Sterling finished the year down 13% against
the US dollar, 9% down against the Swiss franc and just over 7%
down versus the euro.
Elections in the US later in the year also caused surprise
amongst investors, with President Trump's economic ambitions being
viewed optimistically by markets and proving to be supportive of
the US dollar, which ended the year having strengthened against
most major currencies.
Interest rates broadly remain at historically low levels (with
most major economies' negative in real terms), although global
central bank policy proved more divergent in the second half of the
year with the US Federal Reserve announcing rate increases in
December 2016 and March 2017. In contrast, a rate decrease was
announced by the Bank of England in August 2016, and the Bank of
Japan remained in negative interest rate territory since its
decrease in January 2016. Official bond-buying continued under the
umbrella of Quantitative Easing in the UK, the EU and Japan.
The year also saw the first of a series of regulatory changes,
with the introduction of mandatory collateralisation on some
foreign exchange contracts between major market counterparties.
This will be extended to more market participants during the
current financial year. Regulatory focus on investment management
has also continued with the Financial Conduct Authority's Asset
Management Market Study, and the industry's preparations for MiFID
II.
Capital and dividend policy
Since the financial crisis of 2008 and 2009, the Board's focus
has been on building a robust business by continuing to develop its
diverse suite of currency-related products and strategies, by
investing in our people and infrastructure, and by building a
strong and liquid balance sheet and regulatory capital buffer.
Over this period, the yardstick for our balance sheet has been
broadly to hold excess capital equivalent to two years' worth of
overheads excluding variable remuneration. With net assets of
GBP41.6 million, own cash[3] of GBP29.2 million; a surplus over
regulatory capital (adjusted for the final and special dividends
referred to below) of GBP23.1 million and overheads of GBP11.7
million, the current capital structure, with a surplus of just
under 24 months, reflects this policy.
As discussed further in the Business Review, Record has reported
its highest-ever AUME, increased revenues and earnings, and further
growth in revenue diversification, with revenues from Passive
Hedging now covering all overheads excluding variable remuneration.
Given this, the Board has decided that conditions are now right for
a change in the capital policy. The new policy will be to ensure
retained capital broadly equivalent to one year's worth of future
estimated overheads (excluding variable remuneration), in addition
to capital assessed as required for regulatory purposes, for
working capital purposes and for investing in new opportunities for
the business. This new policy will still ensure a significant
capital buffer over regulatory requirements.
Consequently the Board is considering the return of
approximately GBP10 million of excess capital to shareholders so
that our capital structure conforms to our new policy. Record will
provide an update on this to the market shortly.
Our dividend policy targets a level of dividend which is at
least covered by earnings and which allows for sustainable dividend
growth in line with the trend in profitability. In line with such
policy and improved profitability, the Board is recommending a 21%
increase in the ordinary full year dividend to 2.00 pence per
share. The interim dividend of 0.825 pence per share was paid on 23
December 2016, and the final ordinary dividend of 1.175 pence per
share, subject to shareholders' approval, will be paid on 2 August
2017 to shareholders on the register at 30 June 2017.
In my statement last year I confirmed the Board's intention,
subject to financial performance and market conditions at the time,
to return excess earnings over ordinary dividends for the financial
year to shareholders, potentially in the form of special dividends.
The Board is pleased to announce a special dividend equal to the
excess of basic earnings over ordinary dividends, equivalent to
0.91 pence per share to be paid simultaneously with the final
dividend.
In the future, the Board intends to pursue a progressive
ordinary dividend policy, with dividends expected to be paid
equally in respect of an interim and a final dividend. In setting
the interim and final dividends, the Board will be mindful of
setting a level of ordinary dividend payments which it expects to
be at least covered by earnings and which allows for future
sustainable dividend growth by the business in line with the trend
in profitability. The Board intends to continue its approach of
considering returning to shareholders any excess of earnings over
the sum of ordinary dividends for the financial year and increased
capital requirements, normally in the form of special
dividends.
The Board will continue to consider ordinary dividends and other
distributions to shareholders on a "total distribution" basis. The
total distribution for any year will be at least covered by
earnings, and will always be subject to the financial performance
of the business, the market conditions at the time and to any
further excess capital assessed as required under the policy
described above.
Group strategy
The Group believes its core strategies remain appropriate to
achieve sustainable growth in the business. Our primary focus is
still maintaining our existing revenue base and growing this
further through excellent client service and relationships.
Constant innovation is key to meeting the needs of our clients
in a challenging environment. One of the Group's key strengths is
its flexibility which is demonstrated in its capability to adapt
products, processes or distribution methods, and to tailor its
approach to suit individual client requirements.
This innovation can be seen in each of our established products,
where our strategy has been continually to enhance the value
proposition offered to clients in order to resist competitive
pressures on revenue margins. This is particularly true in the case
of Passive Hedging, which can be mis-characterised by others as a
commodity service, but which instead offers growing opportunities
to save costs and add value for clients. Both Dynamic Hedging and
Multi-Strategy have also benefited from enhancements to their
investment process, and combinations of these products are
increasingly tailored to specific clients' needs.
The Board
There were a number of important changes made to the Board
during the year.
Cees Schrauwers and Andrew Sykes stepped down from the Board as
non-executive directors during the year, having each served a full
nine-year term on the Board and hence no longer having been deemed
independent under the UK corporate governance code from November
2016. I would like to thank them both most warmly for their
commitment and valuable guidance over the past nine years and wish
them both well for the future.
Following the conclusion to a succession plan starting in late
2014, and allowing for a period of smooth transition and handover,
we welcomed Rosemary Hilary to the Board as non-executive director
in June 2016, having previously also welcomed Jane Tufnell to the
Board in September 2015. Following the resignations of Cees and
Andrew in September 2016, Rosemary succeeded Cees as Audit and Risk
Committee Chair, David Morrison was appointed Senior Independent
Director and Chair of the Remuneration Committee, and Jane Tufnell
was appointed Chair of the Nomination Committee.
Outlook
Global financial markets continue to experience a mix of
predicted and unexpected developments. Whilst the outcome of the
French presidential election was as anticipated by markets, both
the United Kingdom and United States by contrast continue to
experience political instability. Elections in Germany and
elsewhere in Europe, as well as the ongoing Brexit negotiations,
still contain the capacity to surprise. Geopolitical instability,
whether from the Middle East or South East Asia, also continues to
have an impact on markets.
This environment continues to provide opportunities to engage
with clients, to understand their objectives, and to develop
tailored solutions. Record has the strategies, track records,
operational systems and most importantly the people to do so.
Record's success is a consequence of the hard work, commitment
and professionalism of our people. On behalf of the Board, I would
like to thank everyone at Record for their valuable contribution
towards this success.
Neil Record
Chairman
Chief Executive Officer's statement
The environment of political uncertainty and change creates
opportunities for Record to demonstrate its full range of currency
management skills
Record is reporting growth in AUME, underlying revenues and
underlying earnings. Whilst much of the growth in sterling terms
can be attributed to sterling's depreciation, it is also pleasing
to note AUME growth in US dollar terms, taking AUME to its highest
level in Record's history.
The environment of political uncertainty and change, and the
resultant significant moves in currency markets, have focused
investors' attention on the opportunities presented by currency
management. We have seen inflows throughout the year in Hedging
strategies and in Currency for Return, and we continue to see
interest in a diversified range of opportunities amongst investors
around the world.
Market overview
Financial markets have been dominated by political events in the
year to 31 March 2017, most notably the UK's vote to leave the EU
and the election of President Trump. Partly as a result, markets
around the world have been slow to return to conventional interest
rate policies, although the modest moves to higher US dollar rates
have brought about some divergence. The net effect has included a
marked depreciation of sterling over the financial year; the US
dollar moved sideways in the first half of the year, before
undergoing a notable rally following the election in November. The
ongoing European election cycle brings with it the prospect of
further market volatility as the question of sustainability of the
EU, and by extension the euro, is revisited.
At the market structure level, differences have emerged between
money market interest rates and those implied in foreign exchange
forward contracts which have not generally been observed
historically, as set out further in the Market Review. This creates
relative winners and losers, as well as opportunities for Record's
clients. Regulation is one of the unintended drivers of this
phenomenon. Other regulatory changes have required us to dedicate
significant resources throughout the year to understanding the
impact of such changes on each of our clients and engaging with
clients to help them meet the new requirements.
Investment performance
UK--based Dynamic Hedging programmes allowed UK investors to
capture gains in their underlying overseas exposures as sterling
depreciated, by keeping hedge ratios low throughout the period.
US-based Dynamic Hedging clients saw losses from currency on
international assets when valuing positions in US dollars, as the
US dollar strengthened. Record's Dynamic Hedging product increased
hedge ratios in line with US dollar strength, though programmes
experienced negative hedging returns overall due to the costs
associated with varying the hedge ratios in the first half of the
year, when the US dollar traded in a relatively narrow range.
All of Record's Currency for Return strategies have performed
positively in the period. Carry strategies yielded positive returns
from all currency selections other than a short position in the
Japanese yen, which ended the year up against higher interest rate
currencies. In the case of Emerging Markets, positive returns were
generated over the period as emerging market currencies generally
appreciated against a basket of developed market currencies. Value
performed markedly positively over the year, in part benefiting
from long positions in the Japanese yen and the US dollar. Momentum
generated positive returns through a short position in the
pound.
Asset flows and financial performance
AUME[4] increased by 10% in US dollar terms over the financial
year to $58.2 billion, and by 26% in sterling terms to GBP46.6
billion- its highest ever level. There were net inflows of $3.2
billion in the year, with the majority coming from our Hedging
products comprising Passive Hedging inflows of $2.5 billion and
Dynamic Hedging inflows of $0.7 billion. There were also inflows to
Currency for Return of $0.3 billion as our Multi-Strategy offering
continued to gain interest from clients. Our Multi-product mandates
had outflows of $0.4 billion. The aggregate impact of external
factors (i.e. equity and other market movements and the impact of
exchange rates over the period) was +$2.1 billion. Client numbers
increased to 59.
Underlying[5] revenues increased by 9% to GBP23.1 million. The
increase was principally due to the impact of sterling weakness on
the conversion of the 82% of management fees that are denominated
in currencies other than sterling. Record's costs before Group
Profit Share remuneration grew by 5%, most of which can be
attributed to the office relocation which took place in November
2016. These factors combined with continued discipline in other
cost areas allowed the Group to record an underlying operating
margin of 34%, underlying profit before tax of GBP7.9 million, and
basic earnings per share of 2.91 pence.
Strategic progress
Record's strategic progress over the year can be measured
against each of the objectives set out in the Annual Report
2016.
Client relationships - our strategy of building trusted
individual relationships with clients and their advisors remains
unchanged. During the year we have seen the emergence of clearer
themes amongst investors as to their preferences in managing
currency risk and opportunity. In the US, currency risk management
has risen higher on investors' agendas with the rally in the US
dollar and the recognition of the impact of political events on
currency markets. Switzerland has long been a core market for
Record, and we have increased the resources committed to this
market with the opening of an office in Zürich since the financial
year-end. In all markets the strong performance track record of
Multi-Strategy is encouraging interest. The UK market is more
challenging as sterling's weakness has caused cash outflows from
clients' hedging programmes , and time and attention has to be
focused on meeting regulatory requirements.
Innovation - enhancement of existing products and development of
new ones is a constant feature at Record, driven by clients' needs
and market opportunities. We have prioritised the expansion of our
capabilities in cash and collateral management. The need to do so
comes from a number of sources - legislation mandating variation
margin for FX forwards, our plans to support a greater range of
derivative overlays, and the opportunity to help clients suffering
from low yields and growing cash requirements. We have also
continued to enhance our Passive Hedging offering, emphasising to
clients its bespoke nature, and the opportunity to take advantage
of market opportunities even within a fixed hedge ratio constraint.
The range of exchange-traded funds offered by WisdomTree
Investments, Inc. that track indexes using Record's hedging signals
has continued to grow and has won industry awards.
People - we have continued to attract, retain and develop high
quality people, principally through intern programmes and graduate
and early-stage career hires. We then focus on internal development
and retention of these individuals. When recruiting staff early in
their careers some subsequent attrition is inevitable, but this
also creates a growing pool of alumni with whom we maintain strong
relationships. We have largely succeeded in retaining key staff in
a highly competitive employment market. The working environment for
staff is part of the Group's retention strategy, hence we have
focused on the environment in our expanded office in Windsor, have
moved our US office from Atlanta to New York, and have opened an
office in Zürich since the end of the financial year. We are
proposing changes to our remuneration structures including to
conform conditions between Approved and Unapproved options and
thereby enhance the alignment of interests with external
shareholders.
Risk management - the Group takes a proactive approach to
developing its systems, people and processes, in order to improve
management of the operational risk that we assume from clients and
to meet the demands of emerging regulatory requirements. We have
implemented new systems to support our collateral management
function and have developed a new system to improve our exposure
capture and rebalancing processes for Hedging mandates. We have
continued to invest in our cyber-security defences. The Group has
committed resources to prepare for the implementation of MiFID II,
and to manage the effects of the UK exiting the European Union.
Record is well placed to manage the risks arising from these events
and will continue to keep developments under review.
Growth - we have achieved growth in client numbers (58 to 59),
AUME ($52.9 billion to $58.2 billion), management fees (GBP20.9
million to GBP22.7 million) and underlying revenues (GBP21.3
million to GBP23.1 million) over the period. We have deployed
additional resources in North America and Switzerland and have
sustained efforts in our other core markets of the United Kingdom
and continental Europe. We continue to explore opportunities in
other markets.
Profitability - the Group's underlying profitability has
increased. Underlying profit before tax increased from GBP7.0
million to GBP7.9 million over the period. Revenues benefited from
improved conversion rates for revenues denominated in currencies
other than sterling. The underlying operating margin has increased
to 34%.
Outlook
From a diverse picture of investors' preferences a year ago,
clearer themes have now emerged. In particular, currency risk
management has risen on US investors' agendas, and we continue to
commit significant resources to pursuing these opportunities. The
strong performance of Multi-Strategy continues to attract investor
interest. The Group has increasingly focused on its bespoke and
differentiated approach to Passive Hedging when engaging with
current and prospective clients and their advisers, and we continue
to broaden our capabilities in cash and collateral management.
There is no evident end to political uncertainty and change,
which creates opportunities for Record to demonstrate its full
range of currency management skills to clients. All of Record's
management and staff remain focused on maintaining and enhancing
our relationships with existing clients, as well as developing new
client relationships and continuing to grow the business.
James Wood-Collins
Chief Executive Officer
Key Performance Indicators
The Board and Executive Committee use a number of key
performance indicators ("KPIs") to monitor the performance of the
Group. A five year history of these KPIs is shown below.
KPIs FY-17 FY-16 FY-15 FY-14 FY-13
AUME at 31 March $58.2bn $52.9bn $54.7bn $51.3bn $34.2bn
- US dollars
Client numbers
at 31 March 59 58 55 48 44
Underlying[6]
operating profit
margin 34% 33% 35% 33% 31%
Basic earnings 2.91 2.55 2.66 2.48 1.98
per share ("EPS") p p p p p
-------- -------- -------- -------- --------
How we performed this year
-- AUME increased by +10% in US dollar terms (+26% in pound
sterling terms), including net inflows totalling $3.2 billion for
the year, and finishing the year at its highest ever level;
-- Client numbers grew for the fifth consecutive year and
reached 59 at the end of the year;
-- Underlying operating profit margin increased to 34% for the
year;
-- Basic EPS increased by 14% for the year.
Business review
Record's flexibility and ability to adapt its processes enable
it to meet an increasing demand for bespoke currency solutions from
clients and to address tactical objectives driven by market
events.
Market review
Financial markets in general, and FX markets in particular, were
dominated in the year to 31 March 2017 by political events, most
notably the UK's vote to leave the EU and the election of President
Trump. Partly in reaction to the uncertainties these implied,
markets around the world have been slow to return to conventional
interest rate policies, although the modest moves to higher US
dollar rates have brought about some divergence. At the market
structure level, differences between money market interest rates
and foreign exchange forward contracts have created relative
winners and losers.
Political events
In the year to 31 March 2017 political events largely took
markets by surprise, as well-anticipated events yielded unexpected
outcomes. The first event was the UK's vote on EU membership in
June, which concluded with the vote to leave by 52% to 48%. With no
precedent and with the result threatening to unravel the UK's
trading arrangements with the EU, the pound fell to a 31-year low
against the US dollar. As newly appointed PM Theresa May announced
her intention to pursue a 'hard Brexit', the currency took a
further step lower in October before trading sideways for the rest
of the period.
November saw the second political upset for the year with Donald
Trump's US Presidential election victory. Almost as notable as the
election result was the euphoric asset market response which saw US
bond yields jump from multi-year lows on account of Trump's
Reagan-inspired economic prospectus. Unlike Brexit, the Reagan era
provided a historical precedent for the US dollar, which notably
appreciated as markets anticipated significant fiscal easing and
the prospect of a more hawkish central bank. By the start of 2017,
the US dollar's rally had begun to lose momentum as markets waited
for clarity on Trump's reflationary policy.
Towards the end of the financial year, focus shifted towards the
ongoing European election cycle which promises to fuel currency
market volatility as crucial questions around the long-term
sustainability of the EU, and by extension the euro, are
revisited.
Monetary policy and interest rates
Since the onset of the global financial crisis, interest rates
in developed markets have remained extraordinarily low, and in some
cases below what was previously thought as the zero lower bound.
Over the past year the monetary policy divergence previously
anticipated did not fully come to fruition despite a backdrop of
recovering commodity prices, improved global growth prospects and
restored risk sentiment. While the United States took significant
steps towards monetary policy normalisation, hopes of normalisation
elsewhere were either thwarted by political outcomes such as Brexit
or mired by longer-run structural forces.
In the United States the Federal Reserve took a year-long pause
following its first move towards interest rate normalisation in
December 2015. Inflation moved sideways for the first seven months
of the calendar year and the US dollar showed a similar lack of
direction, range-trading up until the election date in November.
Before the financial year ended, a confluence of factors led the
Federal Reserve to hike the federal funds target rate twice more;
once in its December meeting and again in the March meeting,
causing the US dollar to rally into the new year.
The Bank of England in the first half of the financial year
contended with the impact of Brexit and took precautionary measures
to ease financial conditions. In August the Bank cut interest rates
to an historic low of 0.25 per cent, and restarted its asset
purchase facility and its term funding scheme. In the second half
of the financial year, forewarned dire economic consequences of a
Brexit vote were yet to materialise, and the Bank of England began
revising upwards projections of inflation and growth, although this
failed to pass through noticeably to short term interest rates.
Political risk and easing policy weighed on the pound, which
weakened against all G10 currencies over the financial year.
The European Central Bank and the Bank of Japan both continued
to pursue exceptionally easy monetary policy in order to support
prices and to exert downward pressure on their currencies. In
December the ECB chose to extend its quantitative easing programme
until at least December 2017. The Bank of Japan took new and
innovative measures to combat deflation in September by explicitly
setting a 10 year bond yield target of zero per cent, which was
particularly effective as global yields shifted upwards following
the US election.
The Swiss National Bank (SNB) faced much of the same economic
dilemmas this financial year as last. Although the SNB had
abandoned the 1.20 cap against the euro, the currency remains
inextricably linked to developments in the Eurozone, so the SNB
kept interest rates deeply negative at -0.75 per cent. The Swiss
franc fluctuated throughout the financial year and overall
depreciated marginally against a basket of G10 currencies.
Basis
Since early 2016, Record and other market observers have become
increasingly aware of the breakdown in the historic relationship
between money market interest rates and those implied in foreign
exchange forward contracts, which have historically been held in
lockstep. The newly-emerged the gap between these is referred to as
the basis. The breakdown of this relationship and the emergence of
the basis is largely due to changes in the structure of money
markets and new banking capital adequacy regulations. These have
significantly reduced the capacity of the banking system and other
market participants to prevent the emergence of the basis through
arbitrage. The size and direction of the basis, can be largely
explained by mismatches in global demand for hedging, arising out
of the imbalances between the extent to which for example US dollar
denominated assets are held outside the United States, compared to
the extent to which non-US dollar denominated assets are held
within the United States.
The basis can act to the advantage of certain of our clients, if
it increases the interest rate benefit from hedging or reduces its
cost, or conversely to the disadvantage of others. Whether the
basis is beneficial or detrimental to any particular client depends
on that client's location and exposure currencies. For clients that
are disadvantaged, Record can employ hedging strategies that
attempt to minimise the basis cost, while new opportunities have
arisen for clients who reside on the advantageous side of the
basis.
Regulation
The year to 31 March 2017 saw the first implementation of market
reforms and new regulations in over-the-counter foreign exchange
derivative markets. These regulations are being promulgated in the
European Union, the United States, Switzerland, Canada, Singapore,
Australia, and other jurisdictions.
Whilst the general thrust of regulation is common across
jurisdictions, there remain important implementation differences.
This is particularly true regarding the introduction of mandatory
variation margin and in some cases initial margin on foreign
exchange derivative contracts. As a result Record has dedicated
significant resources during the year to a series of detailed
mandate-by-mandate reviews, analysing the jurisdiction of each
client, each bank counterparty with which they trade, and each
category of instrument they trade, to assess the specific
requirements being imposed on each client and to help clients meet
those requirements. Some of our clients were affected from 1 March
2017; many more clients will be affected from January 2018.
As of the date of this report, the market-wide impact of such
changes has been muted, with no evident differences in pricing
between those market participants that have to exchange margin and
those that do not. There have however been a number of consequences
that were likely unintended by regulators, such as the handicaps
imposed on European Union banks when trading with certain
categories of non-European Union counterparty.
Effects on Record's strategies
Results for UK- and US-based Dynamic Hedging clients were
necessarily driven by the impact of shifting political and economic
expectations on the strength or weakness of the pound and the US
dollar. For UK investors, sterling's depreciation created currency
gains in foreign currency investments, and Dynamic Hedging allowed
clients to keep most of these gains by holding hedge ratios at low
levels. For US investors, the dollar's path was more variable in
the first half of the year, generating costs in the Dynamic Hedging
programmes, although dollar strength in the second half generated
gains partially offsetting earlier losses.
With respect to return-seeking currency strategies, all four
principal strands - Carry, Emerging Markets, Value and Momentum -
generated positive performance throughout the year. Although market
attention was dominated by idiosyncratic events focused on the UK
and the US, the consistent approach each of these strategies takes
to a diversified group of currencies allowed currency behaviour
further from the spotlight, such as commodity-dependent emerging
market currencies, or more minor developed market currencies, also
to be rewarded. Since the rationale for combining these four
strands is that we expect diversification between them, positive
performance from all four should be seen as the exception rather
than the norm.
Operating review
Product investment performance
Our hedging products are predominantly systematic in nature. The
effectiveness of each client mandate is assessed regularly and
adjustments are made when necessary in order to respond to changing
market conditions or to bring the risk profile of the hedging
mandate in line with the client's risk tolerance.
The performance of our Dynamic Hedging product depends on how
the foreign currencies change in value relative to the base
currency of a client. During the year, mandates for our UK-based
Dynamic Hedging clients performed as expected in terms of allowing
clients to benefit from periods of strengthening foreign
currencies, whilst being protected against periods of weakening
foreign currencies. For our US-based Dynamic Hedging clients, costs
associated with a sideways-moving US dollar led to negative hedging
returns.
UK investors saw underlying gains from currency over the year as
sterling weakened against all G10 currencies following the UK's
decision to leave the EU, leading to higher sterling valuations for
foreign currency investments. UK--based Dynamic Hedging programmes
began the period with hedge ratios close to zero, and remained low
throughout the year as the currency depreciated further, thus
containing hedging losses and allowing UK investors to capture
gains in the underlying overseas exposures.
US investors saw losses from currency on international assets
when valuing positions in US dollars, as the US dollar strengthened
against most G10 currencies on account of expectations for
stimulatory fiscal policy, corporate tax cuts and a potential
border adjustment tax. Record's Dynamic Hedging product increased
hedge ratios in line with US dollar strength, though programmes
experienced negative hedging returns due to the costs associated
with varying the hedge ratios in the first half of the year, as the
US dollar traded in a relatively narrow range.
Record had a number of "live" Currency for Return products in
the year. The Record Currency - FTSE FRB10 Index Fund, and Emerging
Market products are founded on market risk premia and as such
perform more strongly in "risk on" environments. By contrast,
Momentum and Value strategies are more behavioural in nature, and
as a result are less risk--sensitive. FRB10 Index, Emerging Market,
Momentum and Value can also be combined to create the Record
Currency Multi--Strategy product.
During the period, all Record Active Forward Rate Bias
portfolios had been transitioned to the FRB10 Index strategy as
part of account restructuring processes agreed with the respective
clients. The Forward Rate Bias Index product uses more diversified
allocations without active risk control and similarly aims to buy
selected higher interest rate developed market currencies and sell
selected lower interest rate currencies. This year saw positive
returns from all currency selections other than a short position in
the Japanese yen, which ended the year up against higher interest
rate currencies. Record remains committed to our belief that over
time currency, and in particular the Carry strategy, can be a
persistent and uncorrelated source of returns for investors, and
that the Carry will continue to generate long--term returns.
Record's Emerging Market Currency Fund generated positive
returns over the period as emerging market currencies generally
appreciated against a basket of developed market currencies.
Returns in the fund were mainly attributable to the appreciation of
the Russian rouble, Brazilian real and South African rand, which
appreciated as an improvement in global growth prospects saw
commodity prices rise throughout the period. In addition, the
diversified developed market shorts contributed positively to
performance as the US dollar appreciated against the euro, Japanese
yen and pound sterling.
Record's Multi--Strategy mandates combining Carry, Emerging
Market, Momentum and Value strategies delivered positive
performance over the period. Gains were driven by positive returns
in all four strands. In the Value strategy, returns were primarily
driven by long positions in the Japanese yen and the US dollar. The
US dollar appreciated over the year as the Federal Reserve
delivered two interest rate hikes during the period, and as markets
anticipated fiscal stimulus following Donald Trump's surprise
Presidential election win. Positive returns in the Momentum strand
were driven by a short position in the pound, which depreciated
significantly in the run up to, and following the UK's decision to
leave the European Union in June. Gains in the Carry strategy were
driven by a long position in the New Zealand dollar which
appreciated as commodity export prices recovered, and a short
position in the Swedish krona which depreciated on account of a
dovish policy stance by the central bank, despite a stream of
positive economic data.
Return for 12 months to Volatility since
31 March 2017 Return since inception inception
Fund name Gearing % % p.a. % p.a.
--------------------------- -------- -------------------------- ----------------------- --------------------------
FTSE FRB10 Index Fund[7] 1.8 8.09% 2.10% 7.32%
Emerging Market Currency
Fund [8]2 1 10.37% 1.58% 6.53%
--------------------------- -------- -------------------------- ----------------------- --------------------------
Return for 12 months to Volatility since
31 March 2017 Return since inception inception
Index/composite returns % % p.a. % p.a.
--------------------------- -------- -------------------------- ----------------------- --------------------------
FTSE Currency FRB10 GBP
Excess return[9] 4.45% 2.04% 4.62%
Currency Value[10] 1.37% 2.93% 3.13%
Currency Momentum[11] 2.06% 1.82% 3.78%
Record Multi--Strategy
composite[12] 6.82% 2.48% 2.45%
Gearing
The Currency for Return product group allows clients to select
the level of exposure they desire in their currency programmes. The
pooled funds have historically offered clients a range of gearing
and target volatility levels. The segregated mandates allow clients
to individually pick the level of gearing and/or volatility
target.
It should be emphasised that in this case "gearing" refers to
the multiple of the maximum size of the aggregate forward contracts
in the currency programme, to the pooled fund's net assets or the
segregated mandate size. This is limited by the willingness of
counterparty banks to take exposure to the pooled fund or
segregated client. Gearing in this context does not involve
borrowing.
AUME development
AUME increased by 10% during the year ended 31 March 2017,
finishing the year at AUME of $58.2 billion (2016: $52.9
billion).
When expressed in sterling, AUME increased by GBP9.8 billion to
GBP46.6 billion (2016: GBP36.8 billion).
AUME development ($bn)
Opening Net client Markets FX effects Closing
AUME at inflows AUME at
1 April 31 March
2016 2016
52.9 +3.2 +5.4 -3.3 58.2
----------- -------- ----------- ----------
AUME movements
The Group has seen net inflows of $3.2 billion during the year
arising from inflows from both new and existing clients of $9.2
billion offset by outflows of $6.0 billion.
Passive Hedging AUME continued to grow reaching $48.2 billion by
the end of the year (2016: $43.4 billion), an increase of 11%. Net
inflows of +$2.5 billion were from a combination of new and
existing clients with the net impact of external factors
contributing a further +$2.3 billion.
Dynamic Hedging benefited from inflows of +$0.7 billion, being
partially offset by external factors with an impact of --$0.5
billion, ending the year at $6.3 billion (2016: $6.1 billion).
Currency for Return AUME was boosted by inflows of +$0.3 billion
to our Multi-Strategy product contributing to an increase from $0.6
billion to $1.0 billion over the period.
Multi-product AUME was broadly unchanged with outflows of -$0.4
billion being offset by the net impact of external factors of +$0.3
billion.
Equity and other market performance
Record's AUME is affected by movements in equity and other
market levels because substantially all the Passive and Dynamic
Hedging, and some of the Multi-product mandates, are linked to
equity and other market levels. Market performance increased AUME
by $5.4 billion in the year to 31 March 2017.
Further detail on the composition of assets underlying our
Hedging and Multi-product mandates is provided below to help
illustrate more clearly the impact of equity and fixed income
market movements on these mandate sizes.
AUME composition by underlying asset class as at 31 March
2017
Equity % Fixed income % Other %
Dynamic Hedging 98% -% 2%
Passive Hedging 29% 42% 29%
Multi-product -% -% 100%
--------- --------------- --------
Forex
The percentage of the Group's AUME which is non--US dollar
denominated is 90%. The foreign exchange impact of the conversion
of non--US dollar mandate sizes into US dollar AUME had the impact
of decreasing AUME by $3.3 billion over the year. This movement
does not have an equivalent impact on the sterling value of fee
income.
At 31 March 2017, the split of AUME by base currency was 21% in
sterling, 58% in Swiss francs, 10% in US dollars, 10% in euros and
1% in other currencies.
Product mix
AUME composition by product
31 March 17 31 March 16
US $bn % US $bn %
------- ------- -----
Dynamic
Hedging 6.3 11% 6.1 12%
Passive
Hedging 48.2 83% 43.4 82%
Currency
for Return 1.0 2% 0.6 1%
Multi-product 2.5 4% 2.6 5%
Cash 0.2 --% 0.2 --%
------- ----- ------- -----
Total 58.2 100% 52.9 100%
------- ----- ------- -----
We have seen AUME growth across most product lines over the
period, with the exception being a modest AUME reduction in our
Multi-product category. As a result there has been no significant
movement in product mix. With inflows of $2.5 billion in the year,
Passive Hedging now represents 83% at 31 March 2017 (2016: 82%)
whilst Dynamic Hedging represents 11% at 31 March 2017 (2016: 12%)
with inflows of $0.7 billion in the period. Multi-product
represented 4% of total AUME at 31 March 2017 (2016: 5%) as a
result of net outflows of $0.4 billion in the period.
Client numbers
After a fifth consecutive year of growth, client numbers reached
59 at 31 March 2017 (2016: 58). The net increase of one client over
the year was comprised of nine new clients and eight clients whose
mandates were terminated, including six associated clients whose
mandates were terminated in the last quarter of the year.
AUME composition by product and base currency
Dynamic Hedging Passive Hedging Currency for Return Multi-product
Base 31 March 31 March 31 March 31 March 31 March 31 March 16 31 March 17 31 March 16
currency 17 16 17 16 17
----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------
Sterling GBP 1.7bn GBP 1.9bn GBP 7.8bn GBP 5.9bn - - - -
US dollar USD 4.3bn USD 3.3bn USD 0.7bn USD 0.4bn USD 0.7bn USD 0.3bn USD 0.2bn USD 0.6bn
Swiss - - CHF 31.6bn CHF 30.2bn - - CHF 2.3bn CHF 1.9bn
franc
Euro - - EUR 5.4bn EUR 2.7bn - - - -
Canadian - - - - CAD 0.4bn CAD 0.3bn - -
dollar
Singapore - - SGD 0.1bn SGD 0.1bn - - - -
dollar
Swedish - - SEK 2.4bn - - - - -
krona
----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------
Financial review
In a strong year for the Group, we are pleased to report our
highest ever value of AUME which finished the year at $58.2
billion.
Overview
In a strong year for the Group, we are pleased to report our
highest ever value of AUME, which finished the year at $58.2
billion (+10%), driven predominantly by asset flows of +$3.2
billion (2016: -$2.3 billion) and increases in underlying equity
and other market movements of +$5.4 billion (2016: +$0.4 billion).
Client numbers increased for the fifth successive year, reaching 59
at the year-end, and now standing a third higher than they were
four years ago (44).
The Group's total revenue increased by 13% over last year,
assisted by the tailwind afforded by sterling depreciation
following the UK referendum vote and its effect on those Group
revenues denominated in the base currencies of our clients, when
retranslated into sterling.
Total operating expenditure (excluding variable remuneration
costs) increased by 5% over the prior year, driven by increases in
both personnel costs and non-personnel costs, at 4% and 7%
respectively. Variable remuneration costs relating to the Group
Profit Share ("GPS") scheme increased by 10% in line with the
increase in underlying operating profit (calculated before
GPS).
As a result of above, the operating profit margin increased to
36% (2016: 32%) for the year, leading to an increase in profit
before tax of 26% over the prior year.
Profit and loss (GBPm) 2017 2016
Revenue 23.9 21.1
Cost of sales (0.3) (0.2)
------- -------
Gross profit 23.6 20.9
Personnel (excluding Group Profit Share Scheme) (7.1) (6.8)
Non--personnel cost (4.6) (4.3)
------- -------
Total expenditure (excluding Group Profit Share Scheme) (11.7) (11.1)
Group Profit Share Scheme (3.3) (3.0)
------- -------
Operating profit 8.6 6.8
------- -------
Operating profit margin 36% 32%
Net interest received 0.1 0.1
------- -------
Profit before tax 8.7 6.9
Tax (1.6) (1.5)
------- -------
Profit after tax 7.1 5.4
------- -------
Revenue
Record's revenue is principally management fees earned from the
provision of currency management services.
Revenue analysis (GBPm) 2017 2016
Management fees 22.7 20.9
Performance fees - 0.3
Other income 1.2 (0.1)
----- ------
Total 23.9 21.1
----- ------
Record charges management fees to its clients based upon the
AUME of the product provided. Both Passive and Dynamic Hedging
typically have management fee only arrangements, although some
Dynamic Hedging programmes have a performance fee element. Record
has historically offered both management fee only, and management
fee plus performance fee structures on Currency for Return
mandates. Higher performance fee rates usually accompany lower
management fee rates and vice versa.
Management fees and performance fees are normally invoiced on a
quarterly basis, although Record may invoice management fees for
some of its larger clients on a monthly basis.
Management fees
Income from management fees earned during the year was GBP22.7
million, an increase of 9% over the previous year.
Passive Hedging management fees grew by 29% and account for over
half (53%) of all management fees, providing a stable source of
revenue which now covers the annual operating expenses (excluding
variable remuneration costs) of the business. The increase in
Passive Hedging management fees was primarily driven by net AUME
inflows totalling $2.5 billion during the year, assisted by the
effects of translating fees charged in clients' base currencies
during a period of sterling weakness.
Management fees from Dynamic Hedging remained broadly level with
last year at GBP5.6 million despite the full year impact this year
of the loss of management fees from a GBP900 million client mandate
announced in October 2015, albeit offset by inflows of $0.7
billion, again assisted by translation effects.
Inflows of $0.4 billion into Currency for Return mandates in the
year alongside sterling translation effects resulted in a 25%
increase to related management fees for the year. Total
Multi-product management fees decreased by 23% as a consequence of
net outflows of -$0.5 billion in the year, further underlining the
variability of certain mandates.
Management fees by product (GBPm) 2017 2016
Dynamic Hedging 5.6 5.5
Passive Hedging 12.1 9.4
Currency for Return 1.0 0.8
Multi-product 4.0 5.2
----- -----
Total 22.7 20.9
----- -----
Average management fee rates for all product lines have remained
broadly constant throughout the year ended 31 March 2017.
Average management fee rates by product - (bps) 2017 2016
Dynamic Hedging 12 13
Passive Hedging 4 3
Currency for Return 15 20
Multi-product 20 19
----- -----
Aggregate Currency for Return fee rates on AUME have decreased
including as a result of increasing portfolio sizes for mandates
with defined volatility targets, where the fee rate is linked to
the target volatility. Certain Multi-Strategy portfolio sizes have
been increased as volatility in the underlying strategies has
fallen and correlations between strategies have increased, reducing
the volatility of the aggregate return to the client. This effect
may reverse in future periods. Fee rates based on volatility
targets have not changed during the period.
Performance fees
Performance fees can be earned either from Currency for Return
or Dynamic Hedging programmes, dependent on the individual client
agreement. Record had two mandates during the year incorporating a
performance fee component, both of which are Dynamic Hedging
mandates. There was no performance fee earned in the year (2016:
GBP0.3 million).
Other income
Other income is principally from gains made on forward foreign
exchange contracts employed by the funds seeded by the Group and
consolidated under IFRS, and includes gains of GBP0.8 million
consolidated on behalf of the Non-controlling interests invested in
the funds. Revenue from the licensing agreement with WisdomTree and
hedging gains or losses on revenues denominated in currencies other
than sterling, and other foreign exchange gains or losses are also
included.
Expenditure
Operating expenditure
Group operating expenditure (excluding variable remuneration)
increased by 5% to GBP11.7 million for the year. Personnel costs
increased by 4% over the prior year in line with the growth in
employee numbers, which rose from an average of 69 last year to 73
this year. An increase in non--personnel costs of 7% was driven
predominantly by the increase in occupancy costs associated with a
new lease on larger offices for Record's headquarters in Windsor
UK, plus moving the US office from Atlanta to New York, both at
higher market rentals than was previously the case (see note 23 of
the financial statements for further detail).
Group Profit Share Scheme
The Group operates a Group Profit Share Scheme such that a
long--term average of 30% of underlying operating profit before
Group Profit Share ("GPS") is made available to be awarded to
staff. The Remuneration Committee has agreed that for the year
ended 31 March 2017, the Group Profit Share Scheme is 30% of
pre--GPS operating profit. This represents GBP3.3 million, an
increase of 10% over the previous financial year and in line with
Group financial performance. Directors and senior management in
Record are required to take a proportion of this remuneration in
the form of shares which are subject to lock--up arrangements under
the scheme rules.
Under the scheme rules, the intention is to purchase shares
required, in the market following the announcement of interim and
full year financial results.
Operating profit and margins
On a fully consolidated basis, the operating profit for the year
increased by 26% to GBP8.6 million and the Group operating margin
increased to 36% (2016: 32%).
Management also considers operating profit and profit before tax
on an "underlying" basis, which excludes the impact of the income
and expenditure attributable to non--controlling interests (i.e.
gains and losses attributable to other investors in the seed funds
which are consolidated into the Group's financial statements on a
line--by--line basis, as required under IFRS). This reflects the
approach used for internal management reporting and is considered
to represent more accurately the core revenues and costs driving
current and future cash flows of the business. Underlying operating
profit for the year was GBP7.7 million (2016: GBP6.9 million) with
underlying profit before tax for the year of GBP7.9 million (2016:
GBP7.0 million).
Cash flow
The Group's year end cash and cash equivalents stood at GBP19.1
million (2016: GBP21.7 million). The cash generated from operating
activities before tax was GBP8.7 million (2016: GBP7.1 million),
with GBP1.6 million paid in taxation (2016: GBP1.6 million) and
GBP3.6 million paid in dividends (2016: GBP3.7 million). At the
year end, the Group held money market instruments with maturities
between three and twelve months, worth GBP18.1 million (2016:
GBP13.0 million). These instruments are managed as cash by the
Group but are not classified as cash under IFRS rules (see note 16
of the financial statements for more details).
Dividends
Shareholders received an interim ordinary dividend of 0.825p per
share paid on 23 December 2016, equivalent to GBP1.8 million. As
disclosed in the Chairman's statement, the Board is recommending an
increased ordinary dividend in line with the improved profitability
of the Group and in addition a special dividend returning the
excess of this year's earnings over the total ordinary dividend to
shareholders. Consequently, the Board recommends paying a final
ordinary dividend of 1.175 pence per share, equivalent to GBP2.6
million, taking the overall ordinary dividend to 2.00 pence per
share, and simultaneously paying a special dividend of 0.91 pence
per share (equivalent to GBP2.0 million), making the total
dividends paid for the year of GBP6.3 million equal to earnings of
2.91 pence per share, (total ordinary dividend paid in respect of
the prior year ended 31 March 2016 was 1.65 pence per share, and
there was no special dividend paid).
Subject to shareholder approval, the final ordinary dividend
will be paid simultaneously with the special dividend on 2 August
2017 to shareholders on the register on 30 June 2017, the
ex--dividend date being 29 June 2017. All ordinary and special
dividends for the financial year will be fully covered by
earnings.
For the current and future financial years, the Board intends to
pursue a progressive dividend policy and to consider the return of
excess earnings over ordinary dividends to shareholders,
potentially in the form of special dividends. On this basis, such
distributions to shareholders will be considered on a 'total
distribution' basis, such that the total distribution for any one
financial year will at least be covered by earnings, whilst always
being subject to market conditions at the time, and to any further
excess capital assessed as required by the Board.
Financial stability and capital management
The Group's balance sheet is strong and liquid with total net
assets of GBP41.6 million at the end of the year, including current
assets managed as cash totalling GBP37.2 million. The business
remains cash generative, with net cash inflows from operating
activities of GBP7.2 million for the year.
The Board's new capital policy is to retain minimum capital
(being equivalent to shareholders' funds) within the business
broadly equivalent to twelve months' worth of future estimated
operating expenses (excluding variable remuneration), plus capital
assessed as sufficient to meet regulatory capital requirements and
working capital purposes, and for investing in new opportunities
for the business. To this end, the Group maintains a financial
model to assist it in forecasting future capital requirements over
a three year cycle under various scenarios and monitors the capital
and liquidity positions of the Group on an ongoing and frequent
basis. The Group has no debt.
Record Currency Management Limited ("RCML") is a BIPRU limited
licence firm authorised and regulated in the UK by the Financial
Conduct Authority ("FCA"), and is a wholly owned subsidiary of
Record plc. RCML is required to submit semi--annual capital
adequacy returns, and it held significant surplus capital resources
relative to its regulatory financial resource requirement
throughout the year. Similarly the Group also submits semi--annual
capital adequacy returns but on a consolidated basis, taking
account of the risks across the business assessed by the Board as
requiring further capital. In assessing these risks, the Group uses
an active risk--based approach to monitoring and managing risks,
which includes its Internal Capital Adequacy Assessment Process
("ICAAP").
The Board has concluded that the Group is adequately capitalised
both to continue its operations effectively and to meet regulatory
requirements, due to the size and liquidity of balance sheet
resources maintained by the Group.
The Group held regulatory capital resources based on the audited
financial statements as at 31 March, as follows:
Regulatory capital resources (GBPm) 2017 2016
Core Tier 1 capital 36.8 33.7
Deductions: intangible assets (0.2) (0.3)
------ ------
Regulatory capital resources 36.6 33.4
------ ------
Further information regarding the Group's capital adequacy
information can be found in the Group's Pillar 3 disclosure, which
is available on the Group's website at www.recordcm.com.
Viability statement
In accordance with the UK Corporate Governance Code, the
Directors have performed a robust assessment of the viability of
the Group considering the business model, the Group's expected
financial position, Board strategy and risk appetite, the Group's
solvency and liquidity and its principal risks.
The Directors review the financial forecasts and position of the
Group on a regular basis, mindful of the need to maintain a strong
balance sheet whilst allowing the Group the flexibility to adapt
its products and services to challenging market conditions, or to
take advantage of emerging business opportunities. The Group's
strategy and principal risks are assessed and reviewed regularly by
the Board as well as by the Executive Committee and operational
sub-committees within the Group.
The market and regulatory environment in which the Group
operates is constantly evolving and the Directors consider it
prudent to consider a three year horizon over which to assess the
viability of the Group. This is consistent with the approach in its
ICAAP, which uses scenario analysis to evaluate potential impacts
of severe but plausible occurrences on the business, and to
quantify the level of capital required to mitigate the financial
impact to the Group. Such scenarios consider material events that
may occur as a result of the principal risks faced by the business,
for example, direct AUME outflows or severe reputational damage to
the business.
Having reviewed and considered the results of the above, the
Directors have a current, reasonable expectation that the Group
will continue to operate and meet its liabilities as they fall due
over the three year period of their assessment, to 31 March
2020.
Consolidated statement of comprehensive income
Year ended 31 March
2017 2016
Note GBP'000 GBP'000
----- --------- ---------
Revenue 3 23,928 21,134
Cost of sales (298) (221)
----- --------- ---------
Gross profit 23,630 20,913
Administrative expenses (15,067) (14,123)
----- --------- ---------
Operating profit 4 8,563 6,790
Finance income 112 143
----- --------- ---------
Profit before tax 8,675 6,933
Taxation 6 (1,540) (1,523)
----- --------- ---------
Profit after tax and total
comprehensive income for
the year 7,135 5,410
Profit and total comprehensive
income for the year attributable
to:
Non--controlling interests 819 (131)
Owners of the parent 6,316 5,541
----- --------- ---------
Earnings per share for
profit attributable to
the equity holders of the
Group during the year
Basic earnings per share 7 2.91p 2.55p
Diluted earnings per share 7 2.90p 2.54p
----- --------- ---------
Consolidated statement of financial position
As at 31 March
2017 2016
Note GBP'000 GBP'000
----- -------- --------
Non--current assets
Property, plant and equipment 10 881 81
Intangible assets 11 245 299
Investments 12 - -
Deferred tax assets 13 102 43
----- -------- --------
Total non--current assets 1,228 423
----- -------- --------
Current assets
Trade and other receivables 14 6,972 5,695
Derivative financial assets 15 53 106
Money market instruments with maturities > 3 months 16 18,102 13,020
Cash and cash equivalents 16 19,120 21,720
----- -------- --------
Total current assets 44,247 40,541
----- -------- --------
Total assets 45,475 40,964
----- -------- --------
Current liabilities
Trade and other payables 17 (3,013) (2,372)
Corporation tax liabilities 17 (804) (776)
Derivative financial liabilities 15 (48) (108)
Total current liabilities (3,865) (3,256)
Total net assets 41,610 37,708
----- -------- --------
Equity
Issued share capital 18 55 55
Share premium account 1,971 1,899
Capital redemption reserve 20 20
Retained earnings 34,785 31,715
----- -------- --------
Equity attributable to owners of the parent 36,831 33,689
Non-controlling interest 20 4,779 4,019
----- -------- --------
Total equity 41,610 37,708
----- -------- --------
Consolidated statement of changes in equity
Year ended 31 March 2017
Called up Share Capital Retained Total Non-controlling Total
share premium redemption earnings Attributable interest equity
capital account reserve to equity
holders of
the parent
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ----------- ------------ ------------- ---------------- ------------
As at 1 April
2016 55 1,899 20 31,715 33,689 4,019 37,708
Profit and total
comprehensive
income for the
year - - - 6,316 6,316 819 7,135
Dividends paid - - - (3,592) (3,592) - (3,592)
Own shares
acquired by EBT - - - (775) (775) - (775)
Release of shares
held by EBT - 72 - 992 1,064 - 1,064
Issue of units in
funds to
non--controlling
interests - - - - - (59) (59)
Share-based
payment reserve
movement - - - 129 129 - 129
----------- ----------- ----------- ------------ ------------- ---------------- ------------
Transactions with
shareholders - 72 - (3,246) (3,174) (59) (3,233)
As at 31 March
2017 55 1,971 20 34,785 36,831 4,779 41,610
----------- ----------- ----------- -------------
Year ended 31 March 2016
Called up Share Capital Retained Total Non--controlling Total
share premium redemption earnings Attributable interest equity
capital account reserve to equity
holders of
the parent
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ----------- ----------- ------------- ----------------- ------------
As at 1 April
2015 55 1,847 20 30,006 31,928 3,876 35,804
Profit and total
comprehensive
income for the
year - - - 5,541 5,541 (131) 5,410
Dividends paid - - - (3,750) (3,750) - (3,750)
Own shares
acquired by EBT - - - (1,006) (1,006) - (1,006)
Release of shares
held by EBT - 52 - 536 588 - 588
Change in
non-controlling
interest on
initial
consolidation of
seed fund - - - - - 417 417
Issue of units in
funds to
non--controlling
interests - - - - - (143) (143)
Share-based
payment reserve
movement - - - 388 388 - 388
----------- ----------- ----------- ----------- ------------- ----------------- ------------
Transactions with
shareholders - 52 - (3,832) (3,780) 274 (3,506)
----------- ----------- ----------- ----------- ------------- ----------------- ------------
As at 31 March
2016 55 1,899 20 31,715 33,689 4,019 37,708
----------- ----------- ----------- ----------- ------------- ----------------- ------------
Consolidated statement of cash flows
Year ended 31 March
2017 2016
Note GBP'000 GBP'000
----- -------- --------
Net cash inflow from operating
activities 24 7,166 5,509
Cash flow from investing
activities
Purchase of intangible software (189) (39)
Purchase of property, plant
and equipment (899) (29)
Sale of securities - 1,462
(Purchase)/sale of money
market instruments with
maturity > 3 months (5,082) 5,079
Increase in cash as a result
of consolidating FTSE FRB10
Index Fund - 1,968
Interest received 112 165
----- -------- --------
Net cash (outflow)/inflow
from investing activities (6,058) 8,606
Cash flow from financing
activities
Cash flow from redemption
of units in funds (59) (143)
Exercise of share options 28 -
Purchase of own shares (221) (794)
Dividends paid to equity
shareholders 8 (3,592) (3,750)
----- -------- --------
Cash outflow from financing
activities (3,844) (4,687)
----- -------- --------
Net (decrease)/ increase
in cash and cash equivalents
in the year (2,736) 9,428
Effect of exchange rate
changes 136 282
Cash and cash equivalents
at the beginning of the
year 21,720 12,010
Cash and cash equivalents
at the end of the year 19,120 21,720
Closing cash and cash equivalents
consist of:
Cash 7,457 5,439
Cash equivalents 11,663 16,281
----- -------- --------
Cash and cash equivalents 16 19,120 21,720
----- -------- --------
Company statement of financial position
As at 31 March
2017 2016
Note GBP'000 GBP'000
----- -------- --------
Non--current assets
Investments 12 4,197 3,666
----- -------- --------
Total non--current assets 4,197 3,666
----- -------- --------
Current assets
Cash and cash equivalents 16 2 2
----- -------- --------
Total current assets 2 2
----- -------- --------
Total assets 4,199 3,668
----- -------- --------
Current liabilities
Trade and other payables 17 (11) (11)
Corporation tax liabilities 17 (67) -
----- -------- --------
Total current liabilities (78) (11)
----- -------- --------
Total net assets 4,121 3,657
----- -------- --------
Equity
Issued share capital 18 55 55
Share premium account 1,809 1,809
Capital redemption reserve 20 20
Retained earnings 2,237 1,773
----- -------- --------
Total equity 4,121 3,657
----- -------- --------
During the year the Company made a total comprehensive gain of
GBP3,855,425 (2016: GBP4,091,492).
Company statement of changes in equity
Year ended 31 March 2017
Called Share Capital Retained Total
up share premium redemption earnings shareholders'
capital account reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- --------- ------------ ---------- ----------------
As at 1 April
2016 55 1,809 20 1,773 3,657
Profit and
total comprehensive
income for
the year - - - 3,855 3,855
Dividends
paid - - - (3,592) (3,592)
Share option
reserve movement - - - 201 201
---------- --------- ------------ ---------- ----------------
Transactions
with shareholders - - - (3,391) (3,391)
As at 31
March 2017 55 1,809 20 2,237 4,121
---------- --------- ------------ ---------- ----------------
Year ended 31 March 2016
Called Share Capital Total
up share premium redemption Retained shareholders'
capital account reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- --------- ------------ ---------- ---------------
As at 1 April
2015 55 1,809 20 1,191 3,075
Profit and
total comprehensive
income for
the year - - - 4,092 4,092
Dividends
paid - - - (3,750) (3,750)
Share option
reserve movement - - - 240 240
---------- --------- ------------ ---------- ---------------
Transactions
with shareholders - - - (3,510) (3,510)
As at 31
March 2016 55 1,809 20 1,773 3,657
---------- --------- ------------ ---------- ---------------
Company statement of cash flows
Year ended 31 March
2017 2016
Note GBP'000 GBP'000
----- -------- --------
Net cash outflow from operating activities 24 - (471)
Cash flow from investing activities
Dividends received 3,592 4,205
Interest received - 1
----- -------- --------
Net cash inflow from investing activities 3,592 4,206
Cash flow from financing activities
Dividends paid to equity shareholders 8 (3,592) (3,750)
----- -------- --------
Cash outflow from financing activities (3,592) (3,750)
----- -------- --------
Net decrease in cash and cash equivalents in the year - (15)
Cash and cash equivalents at the beginning of the year 2 17
----- -------- --------
Cash and cash equivalents at the end of the year 2 2
----- -------- --------
Closing cash and cash equivalents consist of:
Cash 2 2
Cash equivalents - -
----- -------- --------
Cash and cash equivalents 2 2
----- -------- --------
Notes to the financial statements
For the year ended 31 March 2017
These financial statements exclude disclosures that are both
immaterial and judged to be unnecessary to understand our results
and financial position.
1. Accounting policies
In order to increase the clarity of the notes to the financial
statements, accounting policy descriptions appear at the beginning
of the note to which they relate, and are shown in italic text.
The principal accounting policies adopted in the preparation of
these consolidated financial statements are set out in the notes
below. These policies have been consistently applied to all periods
presented unless otherwise stated.
a. Accounting convention
Basis of preparation
The Group and Company have prepared their financial statements
under International Financial Reporting Standards ("IFRSs") as
adopted by the European Union. IFRSs comprise standards and
interpretations approved by the International Accounting Standards
Board ("IASB") and the International Financial Reporting
Interpretations Committee ("IFRIC") as adopted in the European
Union as at 31 March 2017. The financial statements have been
prepared on a historical cost basis, modified to include fair
valuation of derivative financial instruments.
The Directors are satisfied that the Company and the Group have
adequate resources with which to continue to operate for the
foreseeable future. For this reason the financial statements have
been prepared on a going concern basis.
The preparation of financial statements in accordance with the
recognition and measurement principles set out in IFRSs requires
management to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets
and liabilities, income and expenses. The bases for management
judgements, estimates and assumptions are discussed further in note
2.
Impact of new accounting standards
A number of amendments to existing standards and interpretations
have been issued, some of which were mandatory for periods
beginning 1 April 2016, with the remaining becoming effective in
future periods. The new standards and amendments to existing
standards effective for the year to 31 March 2017 have not had a
material impact on the financial statements of Record plc.
Standard Description Effective
date
Amendments to IAS Part of the disclosure 1 January
1 (December 2014) initiative aimed 2016
at improving
financial statement
presentation
and disclosures
----------------------- ----------
Standards and interpretations issued but not yet adopted
Standard Description Effective
date (periods
commencing
on or after
1 January
2017)
IFRS 9 (July 2014) Financial instruments 1 January
2018
IFRS 15 (May 2014) Revenue from 1 January
contracts with 2018
customers
IFRS 16 (January Leases 1 January
2016) 2019
---------------------- ---------------
IFRS 9 has been endorsed by the EU and replaces the
classification and measurement models for financial instruments in
IAS 39 with three classification categories: amortised cost, fair
value through profit or loss and fair value through other
comprehensive income. The Group's business model and the
contractual cash flows arising from its investments in financial
instruments determine the classification. The impact of the
standard will depend on the types of financial instruments held by
the Group on adoption. The detailed assessment of the exact impact
IFRS 9 will have on the Group's financial statements is
ongoing.
IFRS 15 has been endorsed by the EU and deals with revenue
recognition; establishing principles for reporting useful
information to users of financial statements about the nature,
amount, timing and uncertainty of revenue and cash flows arising
from an entity's contracts with customers. Revenue is recognised in
a manner that depicts the pattern of transfer of services to the
customer, according to a five-step model stipulated by the
standard. The standard replaces IAS 18 "Revenue" and IAS 11
"Construction contracts" and related interpretations. The standard
is effective for annual periods beginning on or after 1 January
2018 and earlier application is permitted subject to EU
endorsement. The Group does not anticipate that IFRS 15 will have a
material impact on results. However, additional disclosures may be
required.
IFRS 16 "Leases" will replace IAS 17 "Leases". IFRS 16 requires
that all operating leases in excess of one year, where the Group is
the lessee, are included on the Group's statement of financial
position. The Group will be required to recognise a right-of-use
(ROU) asset and a lease liability (representing the obligation to
make lease payments). The ROU asset will be amortised on a
straight-line basis with the interest expense on the lease
liability being measured using the effective interest method. IFRS
16 contains optional exemptions for both short-term leases (less
than 12 months) and for small-value leases. The standard is
effective for annual periods beginning on or after 1 January 2019
and earlier application is permitted subject to EU endorsement and
the entity adopting IFRS 15 at the same time. The Group is
currently assessing the impact of IFRS 16 on its financial
statements.
No other standards or interpretations issued but not yet
effective are expected to have a material impact on the Group's
financial statements.
b. Basis of consolidation
The consolidated financial information contained within the
financial statements incorporates financial statements of the
Company and its subsidiaries drawn up to 31 March 2017.
Subsidiaries are entities controlled by the Company and are
included from the date that control commences until the date that
control ceases. Control is achieved where the Company is exposed to
or has rights over variable returns from its involvement with the
entity and it has the power to affect returns. Where the Group
controls an entity, but does not own all the share capital of that
entity, the interest of the other shareholders' non-controlling
interests is stated within equity at the non-controlling interests'
proportion of the fair value of the recognised assets and
liabilities.
An Employee Benefit Trust has been established for the purposes
of satisfying certain share--based awards. As the Group has "de
facto" control over this special purpose entity, the trust is fully
consolidated within the financial statements.
The Group has investments in three funds. These funds are held
by Record plc and represent seed capital investments by the Group.
If the Group is in a position to be able to control a fund by
virtue of holding a majority of units in the fund, then the fund is
consolidated within the Group accounts. We consider that the Group
exerts such control in cases where it (either in isolation or
together with its related parties) holds a majority of units in the
fund. Such funds are consolidated either on a line-by-line basis,
or if it meets the definition of a disposal group held for sale it
is classified and accounted for on that basis. In the case that the
Group does not control a fund for the complete reporting period,
then the fund is consolidated only for the part of the reporting
period for which the Group has control over the entity.
The accounts of subsidiary undertakings, which are prepared
using uniform accounting policies, are coterminous with those of
the Company apart from those of the seeded funds which have
accounting reference dates of 30 September. The consolidated
financial statements incorporate the financial performance of the
seeded funds in the year ended 31 March 2017 and the financial
position of the seeded funds as at 31 March 2017.
The Company is taking advantage of the exemption under the
Companies Act 2006 s408(1) not to present its individual statement
of comprehensive income and related notes that form part of the
financial statements. The Group's total comprehensive income for
the year includes a profit of GBP3,855,425 attributable to the
Company (2016: GBP4,091,492).
All intra--Group transactions, balances, income, expenses and
dividends are eliminated on consolidation.
c. Foreign currencies
The financial statements are presented in sterling (GBP), which
is the functional currency of the parent company. Foreign currency
transactions are translated into the functional currency of the
parent company using prevailing exchange rates which are updated on
a monthly basis. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the re--measurement of
monetary items at year end exchange rates are recognised in profit
or loss.
d. Financial instruments
Financial assets and financial liabilities are recognised when
the Group becomes a party to the contractual provisions of the
financial instrument. Financial assets are derecognised when the
contractual rights to the cash flows from the financial assets
expire, or when the financial asset and all substantial risks and
rewards are transferred. A financial liability is derecognised when
it is extinguished, discharged, cancelled or expires.
e. Impairment of assets
The Group assesses whether there is any indication that any of
its assets have been impaired at least annually. If such an
indication exists, the asset's recoverable amount is estimated and
compared to its carrying value.
An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. Impairment
losses are recognised in profit or loss.
f. Provisions and contingent liabilities
Provisions are recognised when present obligations as a result
of a past event will probably lead to an outflow of economic
resources from the Group and amounts can be estimated reliably.
Timing or amount of the outflow may still be uncertain. A present
obligation arises from the presence of a legal or constructive
commitment that has resulted from past events.
Provisions are measured at the estimated expenditure required to
settle the present obligation, based on the most reliable evidence
available at the reporting date, including the risks and
uncertainties associated with the present obligation. Provisions
are discounted to their present values, where the time value of
money is material. Any reimbursement that the Group can be
virtually certain to collect from a third party with respect to the
obligation is recognised as a separate asset. However, this asset
may not exceed the amount of the related provision.
All provisions are reviewed at each reporting date and adjusted
to reflect the current best estimate. In those cases where the
possible outflow of economic resources as a result of present
obligations is considered improbable or remote, no liability is
recognised.
g. Equity
Share capital represents the nominal (par) value of shares that
have been issued. Share premium includes any premium received on
issue of share capital. Retained earnings includes all current and
prior period retained profits and share-based employee
remuneration. All transactions with owners of the parent are
recorded separately within equity.
2. Critical accounting estimates and judgements
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision
affects both current and future periods.
Note 1.b. describes the basis which the Group uses to determine
whether it controls seed funds. Note 19 covers the assumptions made
in calculating the fair value of share options offered by the Group
to its employees. The Directors have judged that the Group does not
bear substantially all the risks and rewards of ownership of its
leasehold premises and therefore accounts for the leases as
operating leases as described in note 23.
3. Revenue
Revenue recognition
Revenue is recognised in profit or loss when the amount of
revenue can be measured reliably, it is probable that economic
benefits will flow to the entity, the stage of completion can be
measured reliably, and the costs incurred and costs to complete the
transaction can be measured reliably also.
Management fees are accrued on a daily basis, typically based
upon an agreed percentage of the assets under management
equivalents ("AUME") denominated in the client's chosen base
currency. The Group is entitled to earn performance fees from some
clients where the performance of the clients' mandates exceeds
defined benchmarks by an agreed level of outperformance over a set
time period. Performance fees are recognised at the end of each
contractual performance period as this is the first point at which
the fee amount can be estimated reliably and it is probable that
the fee will be received.
Segmental analysis
The Directors, who together are the entity's Chief Operating
Decision Maker, consider that its services comprise one operating
segment (being the provision of currency management services) and
that it operates in a market that is not bound by geographical
constraints. The Group provides Directors with revenue information
disaggregated by product, whilst operating costs, assets and
liabilities are presented on an aggregated basis. This reflects the
unified basis on which the products are marketed, delivered and
supported.
a. Product revenues
The Group has split its currency management revenues by product.
Other income includes gains or losses from foreign exchange
conversion, gains or losses on derivative financial instruments
(see note 15), gains or losses on seed investments that have not
been consolidated on a line-by-line basis and fees from other
related services.
2017 2016[13]
Revenue by product type GBP'000 GBP'000
-------- ---------
Management fees
Dynamic Hedging 5,542 5,513
Passive Hedging 12,130 9,438
Currency for Return 1,025 791
Multi-Product 4,021 5,199
Total management fee income 22,718 20,941
Performance fee income - Dynamic Hedging - 315
Other income 1,210 (122)
Total revenue 23,928 21,134
Other income includes gains attributable to the non-controlling
interest's holding in the funds of GBP821,769 (2016: losses of
GBP112,274).
b. Geographical analysis
The geographical analysis of revenue is based on the destination
i.e. the location of the client to whom the services are provided.
All turnover originated in the UK.
2017 2016
Revenue by geographical region GBP'000 GBP'000
-------- --------
Management and performance fee
income
UK 3,863 4,501
US 4,979 3,746
Switzerland 11,576 11,939
Other 2,300 1,070
-------- --------
Total management and performance
fee income 22,718 21,256
-------- --------
Other income 1,210 (122)
-------- --------
Total revenue 23,928 21,134
-------- --------
Other income is not analysed by geographical region.
All of the Group's tangible non--current assets are located in
the UK.
c. Major clients
During the year ended 31 March 2017, four clients individually
accounted for more than 10% of the Group's revenue. The four
largest clients generated revenues of GBP3.7 million, GBP3.4
million, GBP2.9 million and GBP2.5 million in the year (2016: five
largest clients generated revenues of GBP2.8 million, GBP2.8
million, GBP2.4 million, GBP2.4 million and GBP2.3 million).
4. Operating profit
Operating profit for the year is stated after
charging/(crediting):
2017 2016
GBP'000 GBP'000
-------- --------
Staff costs 10,434 9,693
Depreciation of property, plant
and equipment 99 77
Amortisation of intangibles 243 244
Auditor fees
Fees payable to the Group's auditor
for the audit of the Company's
annual accounts 45 45
Fees payable to the Group's auditor
for the audit of subsidiary undertakings 40 39
Fees payable to the Group's auditor
and its associates for other services:
Corporation tax services - 10
Audit-related assurance services 68 68
Operating lease rentals: land
and buildings 502 224
Loss on forward FX contracts held
to hedge cash flow 506 315
(Gain)/loss on derivative financial
instruments held by seed funds (612) 178
Exchange gain on revaluation of
non-controlling interests' holding
in seed funds (420) (17)
Other exchange gains (450) (281)
-------- --------
5. Staff costs
The average number of employees, including Directors, employed
by the Group during the year was:
2017 2016
Corporate 9 9
Client relationships 14 12
Investment research 12 10
Operations 22 23
Risk management 5 4
Support 11 11
Annual average 73 69
The aggregate costs of the above employees, including Directors,
were as follows:
2017 2016
GBP'000 GBP'000
-------- --------
Wages and salaries 7,499 6,922
Social security costs 1,059 1,005
Pension costs 376 479
Other employment benefit costs 1,500 1,287
-------- --------
Aggregate staff costs 10,434 9,693
-------- --------
Other employment benefit costs include share--based payments,
share option costs, and costs relating to the Record plc Share
Incentive Plan.
6. Taxation - Group
Current tax is the tax currently payable based on taxable profit
for the year. Current income tax assets and/or liabilities comprise
those obligations to, or claims from, fiscal authorities relating
to the current or prior reporting periods, that are unpaid at the
reporting date. Current tax is payable on taxable profit, which
differs from profit or loss in the financial statements.
Calculation of current tax is based on tax rates and tax laws that
have been enacted or substantively enacted by the end of the
reporting period.
The total charge for the year can be reconciled to the
accounting profit as follows:
2017 2016
GBP'000 GBP'000
-------- --------
Profit before taxation 8,675 6,933
-------- --------
Taxation at the standard rate of tax in the UK of 20% (2016: 20%) 1,735 1,387
Tax effects of:
Other disallowable expenses and non--taxable income 18 15
Capital allowances for the period (higher)/lower than depreciation (14) 26
Higher tax rates on subsidiary undertakings 11 3
Adjustments recognised in current year in relation to the current tax of prior years - 4
(Profit)/loss attributable to non-controlling interest (164) 26
Other temporary differences (46) 62
-------- --------
Total tax expense 1,540 1,523
-------- --------
The tax expense comprises:
Current tax expense 1,599 1,493
Deferred tax expense (59) 30
-------- --------
Total tax expense 1,540 1,523
-------- --------
The standard rate of UK corporation tax for the year is 20%
(2016: 20%). A full corporation tax computation is prepared at the
year end. The actual charge as a percentage of the profit before
tax may differ from the underlying tax rate. Differences typically
arise as a result of capital allowances differing from depreciation
charged, and certain types of expenditure not being deductible for
tax purposes. Other differences may also arise.
The tax charge for the year ended 31 March 2017 was GBP1,539,580
(2016: GBP1,522,827) which was 17.7% of profit before tax (2016:
22.0%).
7. Earnings per share
Basic earnings per share is calculated by dividing the profit
for the financial year 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
potential dilution.
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.
2017 2016
Weighted average number of shares
used in calculation of basic
earnings per share 217,401,660 217,176,877
Effect of potential dilutive
ordinary shares - share options 591,036 711,980
------------ ------------
Weighted average number of shares
used in calculation of diluted
earnings per share 217,992,696 217,888,857
------------ ------------
pence pence
Basic earnings per share 2.91 2.55
Diluted earnings per share 2.90 2.54
------ ------
The potential dilutive shares relate to the share options
granted in respect of the Group's Share Scheme (see note 19). There
were share options in place at the beginning of the period over
13,369,249 shares. During the year 1,589,458 share options were
exercised, and a further 2,320,748 share options lapsed or were
forfeited. The Group granted 4,197,521 share options with a
potentially dilutive effect during the year. Of the 13,656,564
share options in place at the end of the period, all have a
dilutive impact at the year end.
8. Dividends
Interim and special dividends are recognised when paid and final
dividends when approved by shareholders.
The dividends paid by the Group during the year ended 31 March
2017 totalled GBP3,591,603 (1.65 pence per share) which comprised a
final dividend in respect of the year ended 31 March 2016 of
GBP1,790,888 (0.825 pence per share) and an interim dividend for
the year ended 31 March 2017 of GBP1,800,715 (0.825 pence per
share).
The dividends paid by the Group during the year ended 31 March
2016 totalled GBP3,749,849 (1.725 pence per share) which comprised
a final dividend in respect of the year ended 31 March 2015 of
GBP1,962,261 (0.90 pence per share) and an interim dividend for the
year ended 31 March 2016 of GBP1,787,588 (0.825 pence per
share).
For the year ended 31 March 2017, a final ordinary dividend of
1.175 pence per share has been proposed and a special dividend of
0.91 pence per share has been declared.
9. Retirement benefit obligations
The Group operates defined contribution pension plans for the
benefit of employees. The Group makes contributions to
independently administered plans, such contributions being
recognised as an expense when they fall due. The assets of the
schemes are held separately from those of the Group in
independently administered funds.
The Group is not exposed to the particular risks associated with
the operation of Defined Benefit plans and has no legal or
constructive obligation to make any further payments to the plans
other than the contributions due.
The pension cost charge represents contributions payable by the
Group to the funds and amounted to GBP375,845 (2016:
GBP479,206).
10. Property, plant and equipment - Group
All property, plant and equipment assets are stated at cost less
accumulated depreciation. Depreciation of property, plant and
equipment is provided to write off the cost, less residual value,
on a straight--line basis over the estimated useful life:
-- Leasehold improvements - period from lease commencement to
the earlier of the lease termination date and the next rent review
date
-- Computer equipment - 2 to 5 years
-- Fixtures and fittings - 4 to 6 years
Residual values, remaining useful economic lives and
depreciation methods are reviewed annually and adjusted if
appropriate. Gains or losses on disposal are included in profit or
loss.
The Group's property, plant and equipment comprise leasehold
improvements, computer equipment and fixtures and fittings. The
carrying amount can be analysed as follows:
Leasehold Computer Fixtures
improvements equipment and fittings Total
2017 GBP'000 GBP'000 GBP'000 GBP'000
------------- ---------- ------------- --------
Cost
At 1 April
2016 534 542 244 1,320
Additions 635 106 158 899
Disposals (534) (106) (98) (738)
------------- ---------- ------------- --------
At 31 March
2017 635 542 304 1,481
------------- ---------- ------------- --------
Depreciation
At 1 April
2016 534 483 222 1,239
Charge
for the
year 36 46 17 99
Disposals (534) (106) (98) (738)
------------- ---------- ------------- --------
At 31 March
2017 36 423 141 600
------------- ---------- ------------- --------
Net book
amounts
At 31 March
2017 599 119 163 881
------------- ---------- ------------- --------
At 1 April
2016 - 59 22 81
------------- ---------- ------------- --------
Leasehold Computer Fixtures
improvements equipment and fittings Total
2016 GBP'000 GBP'000 GBP'000 GBP'000
------------- ---------- ------------- --------
Cost
At 1 April
2015 534 624 304 1,462
Additions - 24 5 29
Disposals - (106) (65) (171)
------------- ---------- ------------- --------
At 31 March
2016 534 542 244 1,320
------------- ---------- ------------- --------
Depreciation
At 1 April
2015 534 522 277 1,333
Charge
for the
year - 67 10 77
Disposals - (106) (65) (171)
------------- ---------- ------------- --------
At 31 March
2016 534 483 222 1,239
------------- ---------- ------------- --------
Net book
amounts
At 31 March
2016 - 59 22 81
------------- ---------- ------------- --------
At 1 April
2015 - 102 27 129
------------- ---------- ------------- --------
11. Intangible assets
Intangible assets are shown at historical cost less accumulated
amortisation and impairment losses. Amortisation is charged to
profit or loss on a straight--line basis over the estimated useful
lives of the intangible assets unless such lives are indefinite.
Amortisation is included within operating expenses in the statement
of comprehensive income. Intangible assets are amortised from the
date they are available for use. Useful lives are as follows:
-- Software - 2 to 5 years
Amortisation periods and methods are reviewed annually and
adjusted if appropriate.
The Group's intangible assets comprises both purchased software
and the capitalised cost of software development. The carrying
amounts can be analysed as follows:
Software Total
2017 GBP'000 GBP'000
--------- --------
Cost
At 1 April 2016 1,189 1,189
Additions 189 189
Disposals - -
--------- --------
At 31 March 2017 1,378 1,378
--------- --------
Amortisation
At 1 April 2016 890 890
Charge for the
year 243 243
Disposals - -
--------- --------
At 31 March 2017 1,133 1,133
--------- --------
Net book amounts
At 31 March 2017 245 245
--------- --------
At 1 April 2016 299 299
--------- --------
Software Total
2016 GBP'000 GBP'000
--------- --------
Cost
At 1 April 2015 1,150 1,150
Additions 39 39
Disposals - -
--------- --------
At 31 March 2016 1,189 1,189
--------- --------
Amortisation
At 1 April 2015 646 646
Charge for the
year 244 244
Disposals - -
--------- --------
At 31 March 2016 890 890
--------- --------
Net book amounts
At 31 March 2016 299 299
--------- --------
At 1 April 2015 504 504
--------- --------
Intangible assets includes the capitalised development costs of
the Group's middle and back office system which was completed in
June 2012 and has an estimated useful economic life of five years.
The annual contractual commitment for the maintenance and support
of software is GBP174,941 (2016: GBP138,112). All amortisation
charges are included within administrative expenses.
12. Investments
Company
Investments in subsidiaries are shown at cost less impairment
losses. The capitalised investment in respect of share--based
payments offered by subsidiaries is equal to the cumulative fair
value of the amounts payable to employees recognised as an expense
by the subsidiary. Investments in funds are measured at fair value
through profit or loss.
2017 2016
GBP'000 GBP'000
-------- --------
Investment in subsidiaries (at cost)
Record Currency Management Limited 10 10
Record Group Services Limited 10 10
Record Portfolio Management Limited 10 10
Record Currency Management (US) Inc. - -
Record Fund Management Limited - -
N P Record Trustees Limited - -
-------- --------
Total investment in subsidiaries (at cost) 30 30
-------- --------
Capitalised investment in respect of share--based payments
Record Currency Management (US) Inc. 68 79
Record Group Services Limited 789 578
-------- --------
Total capitalised investment in respect of share--based payments 857 657
-------- --------
Total investment in subsidiaries 887 687
-------- --------
Particulars of subsidiary undertakings
Name Nature of business
Record Currency Management Currency management
Limited services (FCA registered)
Record Group Services Management services
Limited to other Group undertakings
Record Portfolio Management Dormant
Limited
Record Currency Management US advisory and service
(US) Inc. company (SEC and CFTC
registered)
Record Fund Management Dormant
Limited
N P Record Trustees Dormant trust company
Limited
-----------------------------
The Group's interest in the equity capital of subsidiary
undertakings is 100% of the ordinary share capital in all cases.
Record Currency Management (US) Inc. is incorporated in Delaware
(registered office: Corporation Service Company, 2711 Centerville
Road, Wilmington, DE 19808), and all other subsidiaries are
registered in England and Wales with their registered office at
Morgan House, Madeira Walk, Windsor, Berkshire, SL4 1EP, UK.
Investment in funds
In addition to the subsidiaries listed above, funds are
consolidated where the Group has determined that a controlling
interest exists through an investment holding in the fund, in
accordance with IFRS 10 Consolidated Financial Statements. These
funds are seed investments, which have various investment
objectives and policies and are subject to the terms and conditions
of their offering documentation. The principal activity of each is
to invest capital from investors in a portfolio of assets in order
to provide a return for those investors.
The Group has controlled both the Record Currency - Emerging
Market Currency Fund and the Record Currency - Strategy Development
Fund throughout the year ended 31 March 2017 and the comparative
period, the year ended 31 March 2016, and both were consolidated in
full, on a line-by-line basis in the Group's financial statements
throughout these periods.
The Group was not in control of the Record Currency - FTSE FRB10
Index Fund as at 1 April 2015, at which point the Group did not
consolidate the fund on a line-by-line basis, but the Group did
regain control of the fund on 1 September 2015 and has consolidated
it in full on a line-by-line basis since that date.
In May 2013, the Company invested in the Record Currency -
Global Alpha Fund which changed its name to Record Currency -
Strategy Development Fund in November 2015. The Group has
controlled this fund since inception, and the fund is consolidated
in full on a line-by-line basis.
All three fund investments are presented within investments in
the Company statement of financial position.
2017 2016
Investment in funds GBP'000 GBP'000
-------- --------
Record Currency - FTSE FRB10
Index Fund 1,146 1,060
Record Currency - Emerging
Market Currency Fund 1,104 1,000
Record Currency - Strategy
Development Fund (formerly
Global Alpha Fund) 1,060 919
-------- --------
Total 3,310 2,979
-------- --------
All three fund entities are sub-funds of the Record Umbrella
Fund, an open-ended umbrella unit trust authorised in Ireland.
13. Deferred taxation - Group
Deferred tax is the future tax consequences of temporary
differences between the carrying amounts and tax bases of assets
and liabilities shown on the statement of financial position. The
amount of deferred tax provided is based on the expected manner of
recovery or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantively enacted at
the statement of financial position date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised. The carrying amount of the
deferred tax assets are reviewed at each statement of financial
position date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the asset to be recovered.
A deferred tax liability is generally recognised for all taxable
temporary differences.
Deferred tax assets or liabilities arising on goodwill are not
recognised but are however recognised on separately identifiable
intangible assets. Deferred tax arising on the initial recognition
of an asset or liability, other than a business combination, that
at the time of the transaction affects neither the accounting nor
taxable profit or loss, is not recognised.
2017 2016
GBP'000 GBP'000
-------- --------
Credit/(charge) to income statement
in period 59 (30)
Asset brought forward 43 73
-------- --------
Asset carried forward 102 43
-------- --------
The deferred tax asset consists of the tax effect of temporary
differences in respect of:
2017 2016
GBP'000 GBP'000
-------- --------
Deferred tax allowance on unvested
share options 191 10
Shortfall of taxation allowances
over depreciation on fixed
assets (89) 33
-------- --------
Total 102 43
-------- --------
At the year end the Group had deferred tax assets of GBP101,606
(2016: GBP42,850). At the year end there were share options not
exercised with an intrinsic value for tax purposes of GBP1,006,095
(2016: GBP47,742). On exercise the Group will be entitled to a
corporation tax deduction in respect of the difference between the
exercise price and the strike price. There is no unprovided
deferred taxation.
14. Trade and other receivables
Trade and other receivables are stated at their original invoice
value, as the interest that would be recognised from discounting
future cash receipts over the short credit period is not considered
to be material. Individual receivables are considered for
impairment when they are past due or when other objective evidence
is received that a specific counterparty will default. Impairment
of trade receivables is presented within administrative
expenses.
An analysis of the Group's receivables is provided below:
2017 2016
GBP'000 GBP'000
-------- --------
Trade receivables 5,937 4,027
Accrued income 85 1,055
Other receivables 29 25
Prepayments 921 588
-------- --------
Total 6,972 5,695
-------- --------
All amounts are short term. The Directors consider that the
carrying amount of trade and other receivables approximates to
their fair value. All of the Group's trade and other receivables
have been reviewed for indicators of impairment; no such indicators
were noted. The Group has not renegotiated the terms of any
receivables in the year ended 31 March 2017. The carrying amount of
receivables whose terms have been renegotiated, that would
otherwise be past due or impaired is GBPnil (2016: GBPnil).
15. Derivative financial assets and liabilities
Derivative financial instruments are initially recognised at
cost on the date on which the contract is first entered into unless
the fair value at acquisition is different to cost, in which case
fair value is recognised. Subsequently they are measured at fair
value with gains and losses recognised in profit or loss.
Transaction costs are immediately recognised in profit or loss. The
fair values of derivative financial instruments are determined by
reference to active market transactions.
The Group holds derivative financial instruments for two
purposes. The Group uses forward foreign exchange contracts to
reduce the risk associated with sales denominated in foreign
currencies, and additionally uses both foreign exchange options and
forward foreign exchange contracts in order to achieve a return
within the seed funds. The instruments are recognised at fair
value. The fair value of the contracts is calculated using the
market rates prevailing at the period end date. The net gain or
loss on instruments is included within revenue.
2017 2016
Derivative financial assets GBP'000 GBP'000
-------- --------
Forward foreign exchange contracts 18 -
held to hedge cash flow
Forward foreign exchange contracts
held for trading 35 106
Total 53 106
2017 2016
Derivative financial liabilities GBP'000 GBP'000
-------- --------
Forward foreign exchange contracts
held to hedge cash flow (5) (108)
Forward foreign exchange contracts (43) -
held for trading
-------- --------
Total (48) (108)
-------- --------
Derivative financial instruments held to hedge cash flow
At 31 March 2017 there were outstanding contracts with a
principal value of GBP7,786,158 (31 March 2016: GBP5,996,550) for
the sale of foreign currencies in the normal course of business.
The fair value of the contracts is calculated using the market
forward contract rates prevailing at 31 March 2017. The Group does
not apply hedge accounting.
The net gain or loss on forward foreign exchange contracts held
to hedge cash flow is as follows:
2017 2016
Derivative financial instruments GBP'000 GBP'000
held to hedge cash flow
-------- --------
Net loss on forward foreign
exchange contracts at fair value
through profit or loss (506) (315)
-------- --------
Derivative financial instruments held for trading
The Record Currency - FTSE FRB10 Index Fund and the Record
Currency - Emerging Market Currency Fund, use forward foreign
exchange contracts in order to achieve a return. The Record
Currency - Strategy Development Fund may use a variety of
instruments including forward foreign exchange contracts, options
and futures in order to achieve a return.
All derivative financial instruments held by the Record Currency
- Strategy Development Fund (formerly the Global Alpha Fund) and
the Record Currency - Emerging Market Currency Fund were classified
as held for trading throughout the period. The derivative financial
instruments held by the Record Currency - FTSE FRB10 Index Fund
were classified as held for trading from 1 September 2015 when the
fund was consolidated into the Group financial statements.
At 31 March 2017 there were outstanding contracts with a
principal value of GBP16,085,621 (31 March 2016:
GBP14,621,185).
The net gain or loss on derivative financial instruments held
for trading for the year was as follows:
2017 2016
Derivative financial instruments GBP'000 GBP'000
held for trading
-------- --------
Net gain/(loss) on forward foreign
exchange contracts and foreign
exchange options at fair value
through profit or loss 612 (178)
-------- --------
16. Cash management
The Group's cash management strategy employs a variety of
treasury management instruments including cash, money market
deposits and treasury bills. Whilst the Group manages and considers
all of these instruments as cash, which are subject to its own
internal cash management process, not all of these instruments are
classified as cash or cash equivalents under IFRS.
IFRS defines cash and cash equivalents as cash in hand, on
demand and collateral deposits held with banks, 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. Moreover, instruments can only generally be
classified as cash and cash equivalents where they are held for the
purpose of meeting short--term cash commitments rather than for
investment or other purposes.
In the Group's judgement, bank deposits and treasury bills with
maturities in excess of 3 months do not meet the definition of
short--term or highly liquid and are held for purposes other than
meeting short--term commitments. In accordance with IFRS, these
instruments are not categorised as cash or cash equivalents and are
disclosed as money market instruments with maturities >3
months.
Assets managed as cash Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Bank deposits with maturities
> 3 months 15,203 11,518 - -
Treasury bills with
maturities > 3 months 2,899 1,502 - -
-------- -------- -------- --------
Money market instruments
with maturities > 3
months 18,102 13,020 - -
-------- -------- -------- --------
Cash 7,457 5,439 2 2
Bank deposits with maturities
<= 3 months 11,663 16,281 - -
-------- -------- -------- --------
Cash and cash equivalents 19,120 21,720 2 2
-------- -------- -------- --------
Total assets managed
as cash 37,222 34,740 2 2
-------- -------- -------- --------
Cash and cash equivalents Group Company
------------------ ------------------
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Cash and cash equivalents
- sterling 14,174 16,641 2 2
Cash and cash equivalents
- USD 1,026 1,941 - -
Cash and cash equivalents
- CHF 3,846 3,067 - -
Cash and cash equivalents
- other currencies 74 71 - -
-------- -------- -------- --------
Total cash and cash
equivalents 19,120 21,720 2 2
-------- -------- -------- --------
The Group cash and cash equivalents balance incorporates the
cash held by any fund deemed to be under control of Record plc
(refer to note 12 for explanation of accounting treatment). As at
31 March 2017, the cash and cash equivalents held by the seed funds
over which the Group had control totalled GBP5,140,828 (31 March
2016: GBP5,380,007) and the money market instruments with
maturities > 3 months held by these funds were GBP2,899,233 (31
March 2016: GBP1,502,326).
17. Current liabilities
Trade and other payables are stated at their original invoice
value, as the interest that would be recognised from discounting
future cash payments over the short payment period is not
considered to be material.
Trade and other payables
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Trade payables 418 171 - -
Amounts owed to Group
undertakings - - 11 11
Other payables 82 2 - -
Other tax and social
security 324 248 - -
Accruals 2,189 1,951 - -
-------- -------- -------- --------
Total 3,013 2,372 11 11
-------- -------- -------- --------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
Current tax liabilities
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Corporation tax 804 776 67 -
-------- -------- -------- --------
18. Called up share capital
The share capital of Record plc consists only of fully paid
ordinary shares with a par value of 0.025p each. All shares are
equally eligible to receive dividends and the repayment of capital
and represent one vote at the shareholders' meeting.
2017 2016
GBP'000 Number GBP'000 Number
-------- -------- ------------
Authorised
Ordinary shares of
0.025p each 100 400,000,000 100 400,000,000
-------- ------------ -------- ------------
Called up, allotted
and fully paid
Ordinary shares of
0.025p each 55 221,380,800 55 221,380,800
-------- ------------ -------- ------------
Movement in Record plc shares held by the Record plc Employee
Benefit Trust ("EBT")
The EBT was formed to hold shares acquired under the Record plc
share--based compensation plans. Under IFRS the EBT is considered
to be under de facto control of the Group, and has therefore been
consolidated into the Group financial statements.
Neither the purchase nor sale of own shares leads to a gain or
loss being recognised in the Group statement of comprehensive
income.
Number
Record plc shares held by EBT
as at 31 March 2015 3,848,062
Adjustment for net purchases by
EBT 1,094,186
------------
Record plc shares held by EBT
as at 31 March 2016 4,942,248
Adjustment for net sales by EBT (1,323,253)
------------
Record plc shares held by EBT
as at 31 March 2017 3,618,995
------------
The holding of the EBT comprises own shares that have not vested
unconditionally to employees of the Group. Own shares are recorded
at cost and are deducted from retained earnings.
Further information regarding the Record plc share--based
compensation plans and relevant transactions made during the year
is included in note 19.
19. Share--based payments
During the year ended 31 March 2017 the Group has managed the
following share--based compensation plans:
a) The Group Profit Share Scheme: share awards issued under the
Group Profit Share Scheme are classified as share--based payments
with cash alternatives under IFRS 2.
b) The Record plc Share Scheme: share options issued under the
Record plc Share Scheme are classified as equity--settled
share--based payments under IFRS 2.
c) The Record plc Share Incentive Plan: the Group operates the
Record plc Share Incentive Plan ("SIP") to encourage more
widespread ownership of Record plc shares by employees. The SIP is
a tax--approved scheme offering attractive tax savings for
employees retaining their shares in the scheme over the medium to
long term.
All obligations arising from the three schemes are fulfilled
through purchasing shares in the market.
a. Group Profit Share Scheme
Share--based payments with cash alternatives
These transactions are compound financial instruments, which
include a debt element and an equity element. The fair value of the
debt component of the amounts payable to the employee is calculated
as the cash amount alternative offered to the employee at grant
date and the fair value of the equity component of the amounts
payable to the employee is calculated as the market value of the
share award at grant date less the cash forfeited in order to
receive the share award. The debt component is charged to profit or
loss over the period in which the award is earned and remeasured at
fair value at each reporting date. The equity component is charged
to profit or loss over the period in which the award is earned.
The Group Profit Share Scheme allocates a proportion of
operating profits to a profit share pool to be distributed between
all employees of the Group. The Remuneration Committee has the
discretion to vary the proportion awarded to the profit share pool
between 25% and 35% of operating profits, with the intention of
maintaining an average level of 30% of operating profits over the
medium term. Directors and senior employees receive one third of
their profit share in cash, one third in shares ("Earned Shares")
and may elect to receive the final third as cash only or to
allocate some, or all, of the amount for the purchase of Additional
Shares. The charge to profit or loss in respect of Earned Shares in
the period was GBP733,858 (2016: GBP631,252). Other employees
receive two thirds of their profit share in cash and may elect to
receive the final third as cash only or to allocate some, or all,
of the amount for the purchase of Additional Shares.
If an individual elects to receive Additional Shares, the Group
simultaneously awards a Matching Share value amount using a
multiple decided by the Remuneration Committee. The multiple is
dependent on the level of seniority of the employee. The number of
shares is determined by the post--tax cash attributed to Earned
Shares plus Additional Shares plus Matching Shares divided by the
aggregate market value achieved on the purchase of all such shares
in the market. The charge to profit or loss in respect of Matching
Shares in the period was GBP292,525 (2016: GBP262,426). Shares
awarded under the Profit Share Scheme do not include any vesting
restrictions but rather restrictions over subsequent sale and
transfer. All shares which are the subject of share awards vest
immediately and are transferred to a nominee allowing the
individual to retain full rights in respect of the shares
purchased. These shares cannot be sold, transferred or otherwise
disposed of without the consent of the Remuneration Committee
except as follows:
-- Earned Shares - one third on each anniversary of the Profit Share Payment date; and
-- Additional or Matching Shares - the third anniversary of the
Profit Share Payment date for Directors and senior employees and
the second anniversary of the Profit Share Payment date for all
other employees.
The Group Profit Share Scheme rules contain clawback provisions
allowing for the repayment of profit share payments under certain
circumstances including a material breach of contract, an error in
performance of duties or a restatement of accounts which leads to a
change in any prior award under the scheme.
Shares awarded under this scheme are purchased in the
market.
b. The Record plc Share Scheme
Equity--settled share--based payments
The fair value of the amounts payable to employees under these
awards is recognised as an expense over the vesting period of the
award, with a corresponding increase in equity. All such awards
made by the Group involve the parent company granting rights to its
equity instruments to employees of its subsidiary. Consequently the
subsidiary measures the services received from its employees in
accordance with the above classification under IFRS 2 and
recognises a corresponding increase in equity as a contribution
from the parent. The parent has the obligation to settle the
transaction with the subsidiary's employees and therefore
recognises an increase in its investment in the subsidiary and a
corresponding increase in equity.
The fair value of options granted is measured at grant date
using an appropriate valuation model, taking into account the terms
and conditions upon which the instruments were granted. The fair
value amounts for the options issued since flotation were
determined using quoted share prices.
The Record plc Share Scheme allows deferred share awards to be
granted to employees and directors in the Record Group. Part 1 of
the Record plc Share Scheme allows the grant of Unapproved Options
to employees and directors and Part 2 allows the grant of HMRC
Approved Options to employees and directors. Each participant may
be granted Approved Options over shares with a total market value
of up to GBP30,000 on the date of grant. There is no such limit on
the value of grant for Unapproved Options, which have recently been
granted with a market value exercise price in the same way as for
the Approved Options.
Options over an aggregate of 4,197,521 shares were granted under
the Share Scheme during the year (2016: 4,402,249), of which
3,790,000 were made subject to Unapproved Options and 407,521 to
Approved Options (2016: 3,197,500 made subject to Unapproved
Options and 1,204,749 to Approved Options). All options were
granted with an exercise price per share equal to the share price
prevailing at the time of grant.
The 328,574 Approved Options issued on 30 November 2016 each
become exercisable on the fourth anniversary of the date of grant,
subject to the employee being in employment with the Group at the
relevant vesting date and to the extent performance conditions have
been satisfied.
The 1,590,000 Unapproved Options issued on 30 November 2016 each
become exercisable in four equal tranches on the first, second,
third and fourth anniversary of the date of grant, subject to the
employee being in employment with the Group at the relevant vesting
date and to the extent performance conditions have been
satisfied.
The 2,200,000 Unapproved Options issued on 30 November 2016 each
become exercisable in three equal tranches on the third, fourth and
fifth anniversary of the date of grant, subject to the employee
being in employment with the Group at the relevant vesting date and
to the extent personal performance conditions have been
satisfied.
The 78,947 Approved Options issued on 31 January 2017 each
become exercisable on the fourth anniversary of the date of grant,
subject to the employee being in employment with the Group at the
relevant vesting date and to the extent performance conditions have
been satisfied.
The fair value of the services provided by employees has been
calculated indirectly by reference to the fair value of the equity
instruments granted. Fair value amounts for the options granted in
the year ended 31 March 2017 were determined using a Black Scholes
option-pricing method and the following assumptions:
Model input Weighted
average
value
Share price 34.1p
Exercise price 34.1p
Expected volatility 60%
Option life 2.3 years
Risk-free interest rate
(%) 0.73%
Expected volatility is based on historical volatility.
The Group share--based payment expense in respect of the Share
Scheme was GBP200,220 for the year ended 31 March 2017 (2016:
GBP240,067).
Outstanding share options
At 31 March 2017, the total number of ordinary shares of 0.025p
outstanding under Record plc share compensation schemes was
13,656,564 (2016: 13,369,249). These deferred share awards and
options are over issued shares, a proportion of which are hedged by
shares held in an Employee Benefit Trust. Details of outstanding
share options and deferred shares awarded to employees are set out
below:
At
Date At 31 Earliest Latest
of 1 April Lapsed March vesting vesting Exercise
grant 2016 Granted Exercised / forfeited 2017 date date[14] price
08/08/11 75,000 - - (75,000) - 08/08/13 08/08/15 GBP0.3225
02/12/11 200,000 - (200,000) - - 02/12/15 02/12/15 GBP0.1440
18/12/12 1,440,000 - - (1,440,000) - 18/12/16 18/12/16 GBP0.3098
18/12/12 102,500 - (51,250) (51,250) - 18/12/13 18/12/16 GBP0.3098
27/09/13 480,000 - - - 480,000 27/09/17 27/09/17 GBP0.3085
27/09/13 982,500 - (321,250) (333,750) 327,500 27/09/14 27/09/17 GBP0.3085
18/11/13 1,400,000 - (233,333) (233,333) 933,334 18/11/16 18/11/18 GBP0.3000
26/11/14 2,160,000 - - - 2,160,000 26/11/17 26/11/19 GBP0.3586
24/03/15 320,000 - - (50,000) 270,000 24/03/19 24/03/19 GBP0.3450
24/03/15 1,847,000 - (452,375) (9,375) 1,385,250 24/03/16 24/03/19 GBP0.3450
01/12/15 1,800,000 - - - 1,800,000 01/12/18 01/12/20 GBP0.2888
27/01/16 1,325,000 - (331,250) - 993,750 27/01/17 27/01/20 GBP0.2450
27/01/16 837,249 - - (128,040) 709,209 27/01/20 27/01/20 GBP0.2450
27/01/16 327,500 - - - 327,500 27/01/19 27/01/21 GBP0.2450
27/01/16 72,500 - - - 72,500 27/01/19 27/01/21 GBP0.2450
30/11/16 - 328,574 - - 328,574 30/11/20 30/11/20 GBP0.34072
30/11/16 - 1,590,000 - - 1,590,000 30/11/17 30/11/20 GBP0.34072
30/11/16 - 2,200,000 - - 2,200,000 30/11/19 30/11/21 GBP0.34072
31/01/17 - 78,947 - - 78,947 31/01/21 31/01/21 GBP0.38000
Total
options 13,369,249 4,197,521 (1,589,458) (2,320,748) 13,656,564
Weighted
average
exercise
price
of
options GBP0.30 GBP0.34 GBP0.28 GBP0.31 GBP0.32
----------- ---------- ------------ ------------- ----------- --------- ---------- -----------
During the year 1,589,458 options were exercised. The weighted
average share price at date of exercise was GBP0.37. At 31 March
2017 a total of 461,750 options had vested and were
exercisable.
The Directors' interests in the combined share schemes are as
follows:
Ordinary shares held as at
31 March 31 March
2017 2016
-------------- -------------
Record plc Group Profit Share Scheme (interest in restricted share awards)
James Wood--Collins 573,568 783,651
Leslie Hill 759,618 542,301
Bob Noyen 374,641 343,548
Steve Cullen 380,429 270,824
-------------- -------------
Record plc Share Scheme (interest in unvested share options)
James Wood--Collins 2,663,334 2,580,000
Leslie Hill 1,730,000 1,180,000
Bob Noyen 1,730,000 1,180,000
Steve Cullen 1,370,000 895,000
-------------- -------------
Performance measures
Performance conditions attached to all options granted to Board
Directors differ to those granted for all other staff. All
Executive Director option awards are subject to a performance
condition and vest on each of the third, fourth and fifth
anniversaries of the date of grant subject to an earnings per share
("EPS") hurdle linked to the annualised EPS growth for the
respective three, four and five year periods from grant. Vesting is
on a stepped basis, with 25% of each tranche vesting if EPS growth
over the relevant period is at least RPI plus 4% per annum,
increasing through 50%, 75% and with 100% vesting if EPS growth
exceeds RPI plus 13%, as shown in the table below. Options awarded
subject to EPS performance conditions are valued using a Black -
Scholes model.
Record's average EPS growth Percentage of shares subject to the award which vest
>RPI growth + 13% 100%
>RPI growth + 10%, = <RPI + 13% 75%
>RPI growth + 7%, = <RPI + 10% 50%
>RPI growth + 4%, = <RPI + 7% 25%
=<RPI growth + 4% 0%
-----------------------------------------------------
Approved options issued to all other staff are subject to
performance measures linked to the Group's total shareholder return
("TSR") and vest on the fourth anniversary of the date of grant,
subject to these measures. At vesting date, a percentage of the
total options granted may vest based upon Record's TSR performance
versus the median TSR performance as measured against the FTSE 350
General Financial - Price Index. Options awarded subject to TSR
performance conditions are valued using a Black - Scholes model.
The performance target table is given below:
Percentage by which Record's TSR is below the median TSR
performance of the Index Percentage of shares subject to the award which vest
Equal to or above the median TSR performance 100%
Equal to or above 75% of the median TSR performance 75%
Equal to or above 50% of the median TSR performance 50%
Below 50% of the median TSR performance 0%
-----------------------------------------------------
Unapproved options issued to all other staff vest in four equal
tranches on the first, second, third and fourth anniversaries of
the date of grant, subject to the employee being employed with the
Group at the relevant vesting date and to the extent personal
performance conditions have been satisfied.
Clawback provisions
In addition to the performance measures above, both Approved and
Unapproved Options granted to Executive Directors under the Share
Scheme are subject to clawback provisions. These provisions allow
the Remuneration Committee to adjust the number of shares that may
be, or were, acquired to be decreased if the committee considers
that either a material breach of contract has arisen or in respect
of retrospective amendments required to calculations of the Group's
performance upon which vesting calculations were originally based.
The clawback provisions allow the Group to take various steps until
the clawback obligation is satisfied, including reduction of future
share option awards, transfer of shares back to the Group for nil
consideration, reduction of future payments under the Group Profit
Share Scheme or payment of sales proceeds back to the Group.
c. The Record plc Share Incentive Plan
The Group operates the Record plc Share Incentive Plan ("SIP"),
to encourage more widespread ownership of Record plc shares by
employees. The SIP is a tax--approved scheme offering attractive
tax savings for employees retaining their shares in the scheme over
the medium to long term.
As an incentive to employees, the Group matches every two shares
bought by employees with a free matching share. During the year,
the Group awarded 49,264 free shares (2016: 49,223 free shares) to
employees. The expense charged in respect of the SIP was GBP14,838
in the year ended 31 March 2017 (2016: GBP14,690).
20. Non--controlling interest
Record plc has made investments in a number of funds where it is
in a position to be able to control those funds by virtue of the
size of its own holding plus those of any related party.
Non--controlling interests occur when Record plc is not the only
investor in the fund. The non--controlling interest is measured at
cost plus movement in value of the third party investment in the
fund.
Record has seeded three funds which have been active during the
year ended 31 March 2017.
The Record Currency - Emerging Market Currency Fund was
considered to be under control of the Group as the combined holding
of Record plc and its Directors constituted a majority interest
throughout the period. Similarly, the Record Currency - Strategy
Development Fund is considered to be under control of the Group as
the combined holding of Record plc and its Directors has
constituted a majority interest since inception. The Record
Currency - Strategy Development Fund was known as the Record
Currency - Global Alpha Fund until it was renamed on 26 November
2015.
The Record Currency - FTSE FRB10 Index Fund was considered to be
under control of the Group on 31 March 2017, but it was not under
the control of the Group during the period from 28 February 2014 to
31 August 2015, when the amount of external investment meant that
Record did not hold a majority interest.
The mark to market value of units held by investors in these
funds other than Record plc are shown as non--controlling interests
in the Group financial statements, in accordance with IFRS. There
were no other non--controlling interests in the Group financial
statements.
Relative holding of investors other than Record plc in seeded funds consolidated into the 2017 2016
accounts of the Record Group
Record Currency - Emerging Market Currency Fund
Board Directors 38% 61%
Other investors 42% 17%
----- -----
Total non--controlling interest 80% 78%
----- -----
Record Currency - Strategy Development Fund (formerly Global Alpha Fund)
Board Directors -% -%
Other investors -% -%
----- -----
Total non--controlling interest -% -%
----- -----
Record Currency - FRB10 Index Fund
Board Directors -% -%
Other investors 29% 29%
----- -----
Total non--controlling interest 29% 29%
----- -----
Summarised financial information for Record Currency - Emerging
Market Currency Fund, before intra--group eliminations, is set out
below:
2017 2016
GBP'000 GBP'000
-------- --------
Total assets 5,514 4,668
Total liabilities (102) (85)
Net assets 5,412 4,583
Equity attributable to owners
of the parent 1,104 1,000
Non--controlling interests 4,308 3,583
-------- --------
Equity 5,412 4,583
-------- --------
Profit/(loss) and total comprehensive
income/(loss) for the year attributable
to owners of the parent 104 (27)
Profit/(loss) and total comprehensive
income/(loss) for the year attributable
to the non-controlling interest 364 (76)
-------- --------
Profit/(loss) and total comprehensive
income/(loss) for the year 468 (103)
-------- --------
Cash inflow (584) 360
-------- --------
Summarised financial information for Record Currency - Strategy
Development Fund (formerly Global Alpha Fund), before intragroup
eliminations, is set out below:
2017 2016
GBP'000 GBP'000
-------- --------
Total assets 1,063 921
Total liabilities (3) (2)
-------- --------
Net assets 1,060 919
-------- --------
Equity attributable to owners
of the parent 1,060 919
Non--controlling interests - -
-------- --------
Equity 1,060 919
-------- --------
Profit/(loss) and total comprehensive
income/(loss) for the year attributable
to owners of the parent 4 (66)
Loss and total comprehensive
loss for the year attributable
to the non-controlling interest - (88)
-------- --------
Profit/(loss) and total comprehensive
income/(loss) for the year 4 (154)
-------- --------
Cash inflow 123 113
-------- --------
Summarised financial information for Record Currency -- FTSE
FRB10 Index Fund, before intragroup eliminations, is set out
below:
2017 2016
GBP'000 GBP'000
-------- --------
Total assets 1,650 1,520
Total liabilities (33) (24)
-------- --------
Net assets 1,617 1,496
-------- --------
Equity attributable to owners
of the parent 1,146 1,060
Non--controlling interests 471 436
-------- --------
Equity 1,617 1,496
-------- --------
Profit/(loss) and total comprehensive
income/(loss) for the year attributable
to owners of the parent 86 (45)
Profit and total comprehensive
income attributable to non-controlling
interest since 1 September 2015 35 18
-------- --------
Profit/(loss) and total comprehensive
income/(loss) for the year 121 (27)
-------- --------
Cash inflow 222 987
-------- --------
2017 2016
Mark to market value of external GBP'000 GBP'000
holding in seed funds consolidated
into the accounts of the Record
Group
-------- --------
Record Currency - Emerging Market
Currency Fund 4,308 3,583
Record Currency - FTSE FRB10
Index Fund 471 436
Record Currency - Strategy Development - -
Fund (formerly Global Alpha
Fund)
-------- --------
4,779 4,019
-------- --------
21. Financial risk management
The Group's current activities result in the following financial
risks and management responses to those risks in order to minimise
any resulting adverse effects on the Group's financial
performance.
Objectives, policies and processes for managing risk and the
methods used to measure the risk
Financial assets principally comprise trade receivables, other
receivables, money market instruments, cash and cash equivalents
and derivative financial assets. Financial liabilities comprise
trade and other payables and derivative financial liabilities. The
main risks arising from financial instruments are credit risk,
liquidity risk, foreign currency risk and interest rate risk, each
of which is discussed in further detail below.
The Group monitors and mitigates financial risk on a
consolidated basis. The Group has implemented a framework to manage
the risks of its business and to ensure that the Directors have in
place risk management practices appropriate to a listed company.
The management of risk is directed by the Board and reviewed by the
Audit and Risk Committee.
The Company's material financial instruments are investments in
the seed funds, and balances due to/from Group undertakings.
Intercompany balances are classified as loans and receivables and
are repayable on demand. No interest is charged on these balances.
The Group has sufficient cash resources and hence management does
not believe that the Company has a material exposure to credit
risk. The Company's financial risk is managed as part of the Group
financial risk management process and therefore separate
disclosures for the Company have not been provided.
Credit risk
The Group has established a cash management team to manage Group
cash in accordance with an approved cash management policy. The
policy stipulates exposure limits by instruments, counterparty,
tenor and duration. Counterparty exposures are measured against
ratings published by credit--rating agencies and are monitored
daily. The maximum single exposure to any counterparty under the
policy is 20% of total assets managed as cash.
The primary objective of the cash management team is to
diversify and manage counterparty risk within the risk appetite of
the Group and the limits set by the policy. The secondary objective
is to maintain yield given the constraints under the policy whilst
ensuring sufficient liquidity to meet future cash flow commitments
as instructed by the finance team.
The Chief Financial Officer is responsible for reviewing the
Group's credit exposure and ensuring that any credit concerns are
raised to the Risk Management Committee and that action is taken to
mitigate these risks.
The Group's maximum exposure to credit risk is as follows:
2017 2016
Financial assets at 31 March GBP'000 GBP'000
-------- --------
Trade receivables 5,937 4,027
Accrued income 85 1,055
Other receivables 29 25
Other financial assets at fair
value through profit or loss 53 106
Money market instruments with
maturities > 3 months 18,102 13,020
Cash and cash equivalents 19,120 21,720
-------- --------
43,326 39,953
-------- --------
The debtors' age analysis is also evaluated on a regular basis
for potential doubtful debts. It is management's opinion that no
provision for doubtful debts is required. The table below is an
analysis of trade receivables and accrued income by due date:
Neither
impaired More than
Carrying nor past 0--3 months 3 months
amount due past due past due
At 31 March
2017 GBP'000 GBP'000 GBP'000 GBP'000
--------- ---------- ------------ ----------
Trade receivables 5,937 5,790 147 -
Accrued
income 85 85 - -
--------- ---------- ------------ ----------
6,022 5,875 147 -
--------- ---------- ------------ ----------
98% 2% 0%
--------- ---------- ------------ ----------
Neither
impaired More than
Carrying nor past 0--3 months 3 months
amount due past due past due
At 31 March
2016 GBP'000 GBP'000 GBP'000 GBP'000
--------- ---------- ------------ ----------
Trade receivables 4,027 3,912 115 -
Accrued
income 1,055 1,055 - -
--------- ---------- ------------ ----------
5,082 4,967 115 -
--------- ---------- ------------ ----------
98% 2% 0%
--------- ---------- ------------ ----------
The Group offers standard credit terms of 30 days from invoice
date. It is the Group's policy to assess debtors for recoverability
on an individual basis and to make a provision where it is
considered necessary. In assessing recoverability the Group takes
into account any indicators of impairment up to the reporting date.
The application of this policy generally results in debts that are
0--3 months overdue not being provided for unless individual
circumstances indicate that a debt is impaired.
Trade receivables are made up of 54 debtors' balances (2016:
51). The largest individual debtor corresponds to 16% of the total
balance (2016: 15%). Debtor days, based on the generally accepted
calculation of debtor days, is 91 days (2016: 70 days). This
reflects the quarterly billing cycle used by the Group for the vast
majority of its fees. As at 31 March 2017 2.4% of debt was overdue
(2016: 2%). No debtors' balances have been renegotiated during the
year or in the prior year.
Liquidity risk
The Group is exposed to liquidity risk, namely that it may be
unable to meet its payment obligations as they fall due. The Group
maintains sufficient cash and marketable securities to be able to
meet all such obligations. Management review cash flow forecasts on
a regular basis to determine whether the Group has sufficient cash
reserves to meet the future working capital requirements and to
take advantage of business opportunities. The average creditor
payment period is 33 days (2016: 14 days).
Contractual maturity analysis for financial liabilities:
Due or
due in Due between
less Due between 3 months
Carrying than 1 and and 1
amount 1 month 3 months year
At 31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- ------------ ------------
Trade payables 418 272 27 119
Accruals 2,189 90 1,027 1,072
Derivative financial
liabilities 48 45 3 -
--------- --------- ------------ ------------
Due or Due between
due in Due between 3 months
Carrying less than 1 and and 1
amount 1 month 3 months year
At 31 March 2016 GBP'000 GBP'000 GBP'000 GBP'000
--------- ----------- ------------ ------------
Trade payables 171 107 14 50
Accruals 1,951 180 1,017 754
Derivative financial
liabilities 108 38 70 -
--------- ----------- ------------ ------------
Interest rate risk
Interest rate risk is the risk that the value of a financial
instrument or cash flows associated with the instrument will
fluctuate due to changes in market interest rates. Interest rate
risk arises from interest-bearing financial assets and liabilities
held by the Group. Interest-bearing assets comprise money market
instruments and cash and cash equivalents which are considered to
be short--term liquid assets. It is the Group's policy to settle
trade payables within the credit terms allowed and the Group does
not therefore incur interest on overdue balances.
A sensitivity analysis has not been disclosed for the impact of
interest rate changes as any reasonable range of change in interest
rate would not directly have a material impact on profit or
equity.
Interest rate profiles
Fixed Floating No interest Total
rate rate rate
At 31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
-------- --------- ------------ --------
Financial assets
Trade receivables - - 5,937 5,937
Accrued income - - 85 85
Other receivables - - 29 29
Derivative financial
assets at fair value
through profit or
loss - - 53 53
Money market instruments
with maturities >
3 months 18,102 - - 18,102
Cash and cash equivalents 11,663 7,457 - 19,120
-------- --------- ------------ --------
Total financial assets 29,765 7,457 6,104 43,326
-------- --------- ------------ --------
Financial liabilities
Trade payables - - (418) (418)
Accruals - - (2,189) (2,189)
Derivative financial
liabilities at fair
value through profit
or loss - - (48) (48)
-------- --------- ------------ --------
Total financial liabilities - - (2,655) (2,655)
-------- --------- ------------ --------
Fixed Floating No interest Total
rate rate rate
At 31 March 2016 GBP'000 GBP'000 GBP'000 GBP'000
-------- --------- ------------ --------
Financial assets
Trade receivables - - 4,027 4,027
Accrued income - - 1,055 1,055
Other receivables - - 25 25
Derivative financial
assets at fair value
through profit or
loss - - 106 106
Money market instruments
with maturities >
3 months 13,020 - - 13,020
Cash and cash equivalents 16,281 5,439 - 21,720
-------- --------- ------------ --------
Total financial assets 29,301 5,439 5,213 39,953
-------- --------- ------------ --------
Financial liabilities
Trade payables - - (171) (171)
Accruals - - (1,951) (1,951)
Derivative financial
liabilities at fair
value through profit
or loss - - (108) (108)
-------- --------- ------------ --------
Total financial liabilities - - (2,230) (2,230)
-------- --------- ------------ --------
Foreign currency risk
Foreign currency risk refers to the risk that the value of a
financial commitment or recognised asset or liability will
fluctuate due to changes in foreign currency rates. The Group makes
use of forward foreign exchange contracts to manage the risk
relating to future transactions in accordance with the Group's risk
management policy.
The Group is exposed to foreign currency risk on sales and cash
holdings that are denominated in a currency other than sterling,
and also on assets and liabilities held by the Record Currency -
Strategy Development Fund (formerly Global Alpha Fund). The
principal currencies giving rise to this risk are the US dollar,
the Swiss franc, the euro and the Canadian dollar.
During the year ended 31 March 2017, the Group invoiced the
following amounts in currencies other than sterling:
Local Value
currency in reporting
value currency
'000 GBP'000
---------- --------------
Swiss franc (CHF) 14,083 11,021
US dollar (USD) 8,046 6,297
Euro (EUR) 2,055 1,750
Canadian dollar (CAD) 660 390
Swedish Krona (SEK) 482 43
Singapore dollar (SGD) 36 20
---------- --------------
19,521
---------- --------------
The value of revenues for the year ended 31 March 2017 that were
denominated in currencies other than sterling was GBP19.5 million
(31 March 2016: GBP16.7 million).
Record's policy is to reduce the risk associated with the
Group's sales denominated in foreign currencies by using forward
fixed rate currency sales contracts, taking into account any
forecast foreign currency cash flows.
The settlement of these forward foreign exchange contracts is
expected to occur within the following three months. Changes in the
fair values of forward foreign exchange contracts are recognised
directly in profit or loss.
Of the cash denominated in currencies other than sterling (refer
to note 16), only the cash holdings of the Record Currency -
Strategy Development Fund (totalling GBP1,042,229) are not covered
by the Group's hedging process, therefore the Directors consider
that the foreign currency risk on cash balances is not
material.
The Group is exposed to foreign currency risk on all the assets
and liabilities held by the Record Currency - Strategy Development
Fund, which are consolidated into the Group financial statements.
The impact of the valuation of the net assets of this seed fund is
incorporated into the analysis of sensitivity to the sterling / US
dollar rate below.
Foreign currency risk - sensitivity analysis
The Group has considered the sensitivity to exchange rate
movements by considering the impact on those revenues, costs,
assets and liabilities denominated in foreign currencies as
experienced in the given period.
Impact on
profit after Impact on
tax total equity
for the year as at 31
ended 31 March March
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
10% weakening in
the GBP/$ exchange
rate 673 653 673 653
10% strengthening
in the GBP/$ exchange
rate (673) (653) (673) (653)
-------- -------- -------- --------
10% weakening in
the GBP/CHF exchange
rate 682 583 682 583
10% strengthening
in the GBP/CHF exchange
rate (682) (583) (682) (583)
-------- -------- -------- --------
Sterling/US dollar exchange rate
The impact of a change of 10% has been selected as this is
considered reasonable given the current level of exchange rates and
the volatility observed on a historical basis and market
expectations for future movement. When applied to the average
sterling/USD exchange rate of $1.30/GBP this would result in a
weakened exchange rate of $1.19/GBP and a strengthened exchange
rate of $1.44/GBP.
Sterling/Swiss franc exchange rate
The impact of a change of 10% has been selected as this is
considered reasonable given the current level of exchange rates and
the volatility observed on a historical basis and market
expectations for future movement. When applied to the average
sterling/CHF exchange rate of CHF1.29/GBP this would result in a
weakened exchange rate of CHF1.17/GBP and a strengthened exchange
rate of CHF1.43/GBP.
Sensitivity analyses have not been disclosed for other
currencies as any reasonable range of change in exchange rate would
not have a material impact on profit or equity.
Emerging Market Currency Fund
The Group seeded a product in December 2010 called the Record
Currency - Emerging Market Currency Fund, which manages a portfolio
of emerging market currency deliverable forward exchange contracts
and emerging market currency non--deliverable forward exchange
contracts in order to achieve a return. As Record plc exerts
control over the fund, it has been consolidated into the Group's
primary statements. The net assets of the fund at 31 March 2017
were GBP5,411,855 (2016: GBP4,583,029).
The Group is not materially exposed to any of the 19 Emerging
Market currencies traded in its portfolio, but the Group has
considered sensitivity to Emerging Market currencies as a group in
the following table:
Impact on
profit after Impact on
tax for the total equity
year ended as at 31
31 March March
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
10% depreciation in
the Emerging Market
portfolio (490) (412) (490) (412)
-------- -------- -------- --------
10% appreciation in
the Emerging Market
portfolio 490 412 490 412
-------- -------- -------- --------
The impact of a change to the portfolio value of 10% has been
selected as this is considered reasonable given the current level
of exchange rates and the volatility observed on a historical basis
and expectations for future movement in emerging markets.
22. Fair value measurement
The following table presents financial assets and liabilities
measured at fair value in the consolidated statement of financial
position in accordance with the fair value hierarchy. This
hierarchy groups financial assets and liabilities into three levels
based on the significance of inputs used in measuring the fair
value of the financial assets and liabilities. The fair value
hierarchy has the following levels:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2: inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The level within which the financial asset or liability is
classified is determined based on the lowest level of input to the
fair value measurement. The financial assets and liabilities
measured at fair value in the statement of financial position are
grouped into the fair value hierarchy as follows:
2017 Level Level Level
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Financial assets at fair
value through profit
or loss
Forward foreign exchange
contracts used for hedging 18 - 18 -
Forward foreign exchange
contracts used for seed
funds 35 - 35 -
Financial liabilities
at fair value through
profit or loss
Forward foreign exchange
contracts used for hedging (5) - (5) -
Forward foreign exchange
contracts used for seed
funds (43) - (43) -
Total 5 - 5 -
2016 Level Level Level
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Financial assets at fair
value through profit
or loss
Forward foreign exchange
contracts used for seed
funds 106 - 106 -
Financial liabilities
at fair value through
profit or loss
Forward foreign exchange
contracts used for hedging (108) - (108) -
Total (2) - (2) -
There have been no transfers between levels in the reporting
period (2016: none).
Basis for classification of financial instruments classified as
level 2 within the fair value hierarchy
Both forward foreign exchange contracts and options are
classified as level 2. Both of these instruments are traded on an
active market. Options are valued using an industry standard model
with inputs based on observable market data whilst the fair value
of forward foreign exchange contracts may be established using
interpolation of observable market data rather than from a quoted
price.
Classes and fair value of financial instruments
It is the Directors' opinion that the carrying value of all
financial instruments approximates to their fair value.
Categories of financial instrument
Assets Liabilities
Financial at fair at fair
liabilities value value
Loans measured through through
and at amortised profit profit
receivables cost or loss or loss
At 31 March 2017 Note GBP'000 GBP'000 GBP'000 GBP'000
----- ------------- -------------- --------- ------------
Trade and other
receivables (excludes
prepayments) 14 6,051 - - -
Money market instruments
with maturities
> 3 months 16 18,102 - - -
Cash and cash equivalents 16 19,120 - - -
Derivative financial
assets at fair
value through profit
or loss 15 - - 53 -
Trade payables 17 - (418) - -
Accruals 17 - (2,189) - -
Derivative financial
liabilities at
fair value through
profit or loss 15 - - - (48)
----- ------------- -------------- --------- ------------
Total 43,273 (2,607) 53 (48)
----- ------------- -------------- --------- ------------
Assets Liabilities
Financial at fair at fair
liabilities value value
Loans measured through through
and at amortised profit profit
receivables cost or loss or loss
At 31 March 2016 Note GBP'000 GBP'000 GBP'000 GBP'000
----- ------------- -------------- --------- ------------
Trade and other
receivables (excludes
prepayments) 14 5,107 - - -
Money market instruments
with maturities
> 3 months 16 13,020 - - -
Cash and cash equivalents 16 21,720 - - -
Derivative financial
assets at fair
value through profit
or loss 15 - - 106 -
Trade payables 17 - (171) - -
Accruals 17 - (1,951) - -
Derivative financial
liabilities at
fair value through
profit or loss 15 - - - (108)
----- ------------- -------------- --------- ------------
Total 39,847 (2,122) 106 (108)
----- ------------- -------------- --------- ------------
23. Operating lease commitments
Leases in which substantially all the risks and rewards are
retained by the lessor are classified as operating leases. Payments
made under these operating leases are recognised in profit or loss
on a straight--line basis over the term of the lease. Benefits
received as an incentive to sign a lease, whatever form they may
take, are credited to profit or loss on a straight--line basis over
the lease term.
On 25 January 2006, the Group signed a ten year lease on
premises at First Floor, Morgan House, Madeira Walk, Windsor, at an
annual commitment of GBP229,710 per annum and this expired on 19
June 2016. On 20 May 2016, a lease extension was signed allowing
the business to remain in its current offices from 20 June 2016,
for a maximum of nine months to 20 March 2017. Simultaneously, an
agreement for lease was signed on alternative space in the same
building, subject to the completion of refurbishment works,
allowing the business to remain in the same building until
September 2022.
On 7 September 2016, the Group signed a new lease on premises at
Second and Third Floors, Morgan House, Madeira Walk, Windsor, at an
annual commitment of GBP507,603 per annum, expiring 1 September
2022. On 28 November 2016 staff relocated from First Floor, Morgan
House to the new offices on Second and Third Floor, Morgan House.
The lease extension for First Floor, Morgan House was terminated on
30 November 2016.
On 16 March 2016, the Group signed a three year lease on
premises in New York City, at an average annual commitment of
$125,840 per annum.
The Group has considered the risks and rewards of ownership of
the leased properties, and considers that they remain with the
lessors. Consequently, all property leases are recognised as
operating leases.
At 31 March 2017 the Group had commitments under
non--cancellable operating leases relating to land and buildings as
set out below:
2017 2016
GBP'000 GBP'000
-------- --------
Not later than one year 608 143
Later than one year and not
later than five years 2,134 177
Later than five years 211 -
-------- --------
Total 2,953 320
-------- --------
24. Cash flow from operating activities
This note should be read in conjunction with the cash flow
statements. It provides a reconciliation to show how operating
profit, which is based on accounting rules, translates to cash
flows.
Group
2017 2016
GBP'000 GBP'000
-------- --------
Operating profit 8,563 6,790
Adjustments for non-cash
movements:
Depreciation of property,
plant and equipment 99 77
Amortisation of intangible
assets 243 244
Net release of shares previously
held by EBT 587 374
Share-based payments 24 388
Other non-cash movements (146) (282)
-------- --------
9,370 7,591
Changes in working capital
(Increase)/decrease in receivables (1,268) 610
Increase/(decrease) in payables 641 (600)
Decrease in other financial
assets 53 1,182
Decrease in other financial
liabilities (60) (1,664)
-------- --------
Cash inflow from operating
activities 8,736 7,119
Corporation taxes paid (1,570) (1,610)
-------- --------
Net cash inflow from operating
activities 7,166 5,509
-------- --------
Company
2017 2016
GBP'000 GBP'000
-------- --------
Operating profit/(loss) 330 (114)
Adjustment for:
(gain)/loss on investments (330) 113
Changes in working capital
Decrease in payables - (470)
-------- --------
Cash outflow from operating activities - (471)
Corporation taxes paid - -
-------- --------
Net cash outflow from operating activities - (471)
-------- --------
25. Related parties transactions
Company
Details of transactions between the Company and other Group
undertakings, which are related parties of the Company, are shown
below:
Transactions with subsidiaries
The Company's subsidiary undertakings are listed in note 12,
which includes a description of the nature of their business.
2017 2016
GBP'000 GBP'000
-------- --------
Amounts due to subsidiaries (11) (11)
Net dividends received from subsidiaries 3,592 4,205
-------- --------
Amounts owed to and by related parties will be settled in cash.
No guarantees have been given or received. No provisions for
doubtful debts have been raised against amounts outstanding (2016:
GBPnil). No expense has been recognised during the period in
respect of bad or doubtful debts due from related parties.
Group
Transactions or balances between Group entities have been
eliminated on consolidation and in accordance with IAS 24, are not
disclosed in this note.
Key management personnel compensation
2017 2016
GBP'000 GBP'000
-------- --------
Short--term employee benefits 4,651 3,894
Post--employment benefits 184 280
Share--based payments 1,387 989
-------- --------
Total 6,222 5,163
-------- --------
The dividends paid to key management personnel in the year ended
31 March 2017 totalled GBP1,915,103 (2016: GBP1,963,285).
Directors' remuneration
2017 2016
GBP'000 GBP'000
-------- --------
Emoluments (excluding pension
contribution) 2,571 2,326
Pension contribution (including
payments made in lieu of pension
contributions) 164 150
-------- --------
Aggregate emoluments of the Directors 2,735 2,476
-------- --------
During the year, one Director of the Company (2016: three)
participated in the Group Personal Pension Plan, a defined
contribution scheme.
Transactions with seeded funds
From time to time, the Group injects capital into funds operated
by the Group to trial new products (seed capital). If the Group is
able to exercise control over such a seeded fund by holding a
majority interest (whether the majority interest is held by Record
plc alone, or by combining the interests of Record plc and its
Directors), then the fund is considered to be a related party.
Record Currency - Strategy Development Fund (formerly Global
Alpha Fund) and Record Currency - Emerging Market Currency Fund are
both related parties on this basis. Similarly, the Record Currency
- FTSE FRB10 Index Fund has been a related party since the Record
plc holding became a majority interest as a result of a divestment
of an external investment from the fund. There were no transactions
between the Company and these funds during the year.
26. Capital management
The Group's objectives when managing capital are (i) to
safeguard the Group's ability to continue as a going concern, (ii)
to provide an adequate return to shareholders, and (iii) to meet
regulatory capital requirements set by the UK Financial Conduct
Authority.
The Group sets the amount of capital in proportion to risk. The
Group manages the capital structure and makes adjustments to it in
light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or
adjust the capital structure, the Group may adjust the amount of
dividends paid to shareholders, return capital to shareholders, or
issue new shares. The Group had no debt in the current or prior
financial year and consequently does not calculate a
debt--to--adjusted capital ratio.
The Group's capital is managed within the categories set out
below:
2017 2016
GBPm GBPm
----- -----
Regulatory capital 8.9 8.5
Other operating capital 24.6 22.2
----- -----
Operating capital 33.5 30.7
Seed capital 3.3 3.0
----- -----
Total capital 36.8 33.7
----- -----
Operating capital is intended to cover the regulatory capital
requirement plus capital required for day to day operational
purposes and other investment purposes. The Directors consider that
the other operating capital significantly exceeds the actual day to
day operational requirements.
Seed capital is the capital deployed to support the growth of
new funds. Seed capital is limited to 15% of the Group's total
capital.
For regulatory capital purposes Record plc is subject to
consolidated financial supervision by the Financial Conduct
Authority ("FCA"). Our regulatory capital requirements are in
accordance with FCA rules and consistent with the Capital
Requirements Directive. Our financial resources have exceeded our
financial resource requirements (regulatory capital requirements)
at all times during the year. Further information is provided in
the Business Review.
27. Ultimate controlling party
As at 31 March 2017 the Company had no ultimate controlling
party, nor at 31 March 2016.
28. Post reporting date events
No adjusting or significant non--adjusting events have occurred
between the reporting date and the date of authorisation.
29. Statutory Accounts
This statement was approved by the Board on 15 June 2017. The
financial information set out above does not constitute the
Company's statutory accounts.
The statutory accounts for the financial year ended 31 March
2016 have been delivered to the Registrar of Companies, and those
for the year ended in 31 March 2017 will be delivered in due
course. The auditor has reported on those accounts; the reports
were unqualified, did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying the report, and did not contain statements under section
498(2) or 498(3) of the Companies Act 2006 in respect of either set
of accounts.
Product classification
Record has historically reported AUME and management fees
between four core products, being Dynamic Hedging, Passive Hedging,
Currency for Return and Cash and other.
However, clients may also elect for mandates with combined
hedging and return-seeking objectives, which cannot readily be
separated into hedging and return-seeking components. Therefore, to
reflect such mandates held not only with current clients but also
with potential future clients, a new product category has been
introduced: Multi-product mandates. This new classification does
not represent a new service line, rather seeks to redefine the
boundaries between existing products, and combinations of
products.
To assist in understanding the changes, AUME, management fees
and management fee rates by product have been presented under both
historic and revised conventions.
AUME for the Multi-product classification is based on the
mandate size of those mandates, in order to maintain the clear link
between AUME, fee levels and management fees. This change in
definition gives rise to an AUME adjustment in the reconciliation
below of -$1.5 billion as at 31 March 2017 (31 March 2016: -$0.8
billion). These adjustments do not represent a genuine AUME
flow.
Historic Mandate AUME re-definition Revised
presentation reclassification presentation
---------------
AUME
US$ billion Mar-16 Mar-17 Mar-16 Mar-17 Mar-16 Mar-17 Mar-16 Mar-17
------- ------- --------- ---------- -------
Dynamic
Hedging 7.9 8.7 -1.8 -2.4 0.0 0.0 6.1 6.3
------- ------- --------- --------- ---------- --------- ------- -------
Passive
Hedging 43.8 48.7 -0.4 -0.5 0.0 0.0 43.4 48.2
------- ------- --------- --------- ---------- --------- ------- -------
Currency
for Return 1.8 2.1 -1.2 -1.1 0.0 0.0 0.6 1.0
------- ------- --------- --------- ---------- --------- ------- -------
Multi-product N/a N/a 3.4 4.0 -0.8 -1.5 2.6 2.5
------- ------- --------- --------- ---------- --------- ------- -------
Cash and
other 0.2 0.2 0.0 0.0 0.0 0.0 0.2 0.2
------- ------- --------- --------- ---------- --------- ------- -------
Total 53.7 59.7 0.0 0.0 -0.8 -1.5 52.9 58.2
------- ------- --------- --------- ---------- --------- ------- -------
Management
fees
GBP million FY-16 FY-17 FY-16 FY-17 FY-16 FY-17
------- ------- --------- --------- ------- -------
Dynamic
Hedging 8.3 8.4 -2.8 -2.8 5.5 5.6
------- ------- --------- --------- ------- -------
Passive
Hedging 9.4 12.1 0.0 0.0 9.4 12.1
------- ------- --------- --------- ------- -------
Currency
for Return 3.2 2.2 -2.4 -1.2 0.8 1.0
------- ------- --------- --------- ------- -------
Multi-product N/a N/a 5.2 4.0 5.2 4.0
------- ------- --------- --------- ------- -------
Total 20.9 22.7 0.0 0.0 20.9 22.7
------- ------- --------- --------- ------- -------
Management
fee rates
- bps
per annum FY-16 FY-17 FY-16 FY-17
------- ------- ------- -------
Dynamic
Hedging 15 14 13 12
------- ------- ------- -------
Passive
Hedging 3 3 3 4
------- ------- ------- -------
Currency
for Return 15 13 20 15
------- ------- ------- -------
Multi-product N/a N/a 19 20
------- ------- ------- -------
Notes to Editors
This announcement includes information with respect to Record's
financial condition, its results of operations and business,
strategy, plans and objectives. All statements in this document,
other than statements of historical fact, including words such as
"anticipates", "expects", "intends", "plans", "believes", "seeks",
"estimates", "may", "will", "continue", "project" and similar
expressions, are forward-looking statements.
These forward-looking statements are not guarantees of the
Company's future performance and are subject to risks,
uncertainties and assumptions that could cause the actual future
results, performance or achievements of the Company to differ
materially from those expressed in or implied by such
forward-looking statements.
The forward-looking statements contained in this document are
based on numerous assumptions regarding Record's present and future
business and strategy and speak only as at the date of this
announcement.
The Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking
statements contained in this announcement whether as a result of
new information, future events or otherwise.
The information contained within this announcement is deemed by
the Group to constitute inside information as stipulated under the
Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the
publication of this announcement via Regulatory Information Service
("RIS"), this inside information is now considered to be in the
public domain.
[1] As a currency manager Record manages only the impact of
foreign exchange and not the underlying assets, therefore its
"assets under management" are notional rather than tangible. To
distinguish this from the AUM of conventional asset managers,
Record uses the concept of Assets Under Management Equivalents
("AUME") and by convention this is quoted in US dollars.
[2] "Own cash" includes Group assets managed as cash excluding
non-controlling interests
[3] "Own cash" includes Group assets managed as cash excluding
non-controlling interests (see Financial statements note 16)
[4] During the year ended 31 March 2017, Record introduced a new
product category ("Multi-product") in order to redefine the
boundaries between existing products, and combinations of products,
and redefined how AUME is measured for this new category. A full
reconciliation of AUME under the new classification and the
historic classifications is provided after the notes to the
financial statements. All AUME data in the main body of this report
is provided using the new classification basis.
[5] The Group uses non-GAAP measures such as "underlying
revenue" and "underlying operating profit". These measures are
calculated by removing the impact of non-controlling interests from
the normal GAAP measures presented in the financial statements
calculated in accordance with IFRS. The Group believes that these
non-GAAP measures provide a useful indication of the performance of
the business.
[6] Underlying operating profit margin is a non--GAAP measure
which represents the results prior to consolidating the
non-controlling interest. This reflects internal management
reporting which management consider to be more indicative of the
revenues and costs driving future profitability and cash flows of
the business.
[7] FTSE FRB10 Index Fund return data is since inception in
December 2010, GBP base.
[8] Record Currency - Emerging Market Currency Fund return data
is since inception in December 2010, GBP base.
[9] FTSE Currency FRB10 GBP Excess return data is since December
1987, GBP base.
[10] Currency Value return data is since inception in July 2012,
CAD base.
[11] Currency Momentum return data is since inception in July
2012, CAD base.
[12] Record Multi--Strategy composite is since inception in July
2012, showing excess returns data gross of fees in USD base.
[13] . During the year, the Group introduced a new product
classification (Multi-product), and has restated the prior year
analysis on the revised basis. A full reconciliation of the
analysis under historic classification to the revised
classification is provided after the notes to the financial
statements.
[14] Under the terms of the deeds of grants, options are
exercisable for a year following the vesting date.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFAFMIFWSEEM
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