TIDMREC
RNS Number : 4764B
Record PLC
17 June 2016
PRESS RELEASE
Record plc
17 June 2016
FINAL RESULTS ANNOUNCEMENT FOR THE YEARED 31 MARCH 2016
Record plc, the specialist currency manager, today announces its
audited results for the year ended 31 March 2016.
Financial headlines:
-- AUME(1) $53.7bn at 31 March 2016 (down 3%)
-- AUME GBP37.4bn at 31 March 2016 (up 0.3%)
-- Revenue of GBP21.1m (2015: GBP21.1m)
-- Pre-tax profit of GBP6.9m (down 10%)
-- Operating profit margin of 32% to 31 March 2016 (2015:
36%)
-- Robust financial position with net assets of GBP37.7m at 31
March 2016 (2015: GBP35.8m).
-- Basic EPS of 2.55p per share (2015: 2.66p)
-- Proposed final dividend for the year to 31 March 2016 is
0.825p per share, giving a total dividend in respect of the year of
1.65p per share (2015: 1.65p)
Key developments:
-- Client numbers continue to grow, standing at 58 at 31 March
2016 (up 3)
-- Passive Hedging is now the largest generator of management
fees
-- More challenging market environment, with limited persistent
trends, narrowing expectations of interest rate differentials, and
a prolonged decline in emerging market currencies
-- Regulatory requirements expected to increase, including in
respect of mandatory variation margin
-- Wide divergence of views has emerged amongst investors as to
their preferences in managing currency risk and opportunity
-- New business opportunities include flexible and innovative
solutions
-- EU referendum on 23 June 2016: anticipating potential periods
of elevated volatility and managing the impact on clients'
portfolios
-- Balance sheet is sufficiently strong to consider return to
shareholders of future annual earnings in excess of ordinary
dividends
[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.
Commenting on the results, Neil Record, Chairman of Record plc,
said:
"The year has been one of hesitant growth for the global economy
and uncertainty in financial markets. Market sentiment continues to
be driven more by political events and expectations around central
bank policy than by longer-term economic factors. The effect on
currency markets has been continued uncertainty and volatility in
exchange rates.
"Against this challenging backdrop, revenues for the year were
maintained at GBP21.1 million (2015: GBP21.1 million) and total
expenditure increased to GBP14.1 million (2015: GBP13.4 million)
principally due to the firm--wide salary increase of 10%
implemented on 1 May 2015. Consequently, the operating margin of
the Group decreased to 32% (2015: 36%) and basic earnings per share
decreased by 4% to 2.55 pence (2015: 2.66 pence).
"The Board is recommending a final ordinary dividend of 0.825
pence per share. The total ordinary dividend in respect of the year
ended 31 March 2016 of 1.65 pence per share is unchanged on the
previous year and in line with our intention as stated in this
year's interim report.
"For the current financial year, the Board's expectation,
subject to business conditions, is to maintain the total ordinary
dividend at the current level. Also, the Board now considers the
Group's balance sheet and regulatory capital buffer sufficiently
strong to support the consideration of returning at least part of
any excess of future earnings per share over ordinary dividends to
shareholders, potentially in the form of special dividends.
"Since our last annual report, we've announced the appointment
of Jane Tufnell and Rosemary Hilary to the Board. Both Jane and
Rosemary bring a wealth of relevant experience from their
respective careers and my Board colleagues and I look forward to
working closely with them and in benefitting from their valuable
insight and business acumen.
"In such challenging environments, there are opportunities for
further engagement both with clients and prospective clients to
understand their currency-related issues and specific requirements.
Whether the answer lies with using our more standard hedging or
currency for return products or whether circumstances require a
more bespoke approach, we believe we have the people, systems,
flexibility and capability to provide a solution.
"The business is well placed to face such challenging
environments and to take advantage of the opportunities arising
with a strong, committed team of professionals and a robust
financial position."
Analyst briefing
There will be a presentation for analysts at 9.30am on Friday 17
June 2016 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
2016 2015
GBP'000 GBP'000
--------- ---------
Revenue 21,134 21,057
Cost of sales (221) (148)
--------- ---------
Gross profit 20,913 20,909
Administrative expenses (14,123) (13,373)
--------- ---------
Operating profit 6,790 7,536
Finance income 143 146
--------- ---------
Profit before tax 6,933 7,682
Taxation (1,523) (1,708)
--------- ---------
Profit after tax and total
comprehensive income for the
year 5,410 5,974
Profit and total comprehensive
income for the year attributable
to:
Non--controlling interests (131) 192
Owners of the parent 5,541 5,782
--------- ---------
Earnings per share for profit
attributable to the equity
holders of the Group during
the year
Basic earnings per share 2.55p 2.66p
Diluted earnings per share 2.54p 2.65p
--------- ---------
Consolidated statement of financial position
As at 31 March
2016 2015
GBP'000 GBP'000
-------- --------
Non--current assets
Property, plant and equipment 81 129
Intangible assets 299 504
Investments - 2,567
Deferred tax assets 43 73
-------- --------
423 3,273
Current assets
Trade and other receivables 5,695 6,324
Derivative financial assets 106 619
Money market instruments with maturity > 3 months 13,020 18,100
Cash and cash equivalents 21,720 12,010
-------- --------
Total current assets 40,541 37,053
-------- --------
Total assets 40,964 40,326
-------- --------
Current liabilities
Trade and other payables (2,372) (2,949)
Corporation tax liabilities (776) (893)
Derivative financial liabilities (108) (680)
Total current liabilities (3,256) (4,522)
Total net assets 37,708 35,804
-------- --------
Equity
Issued share capital 55 55
Share premium account 1,899 1,847
Capital redemption reserve 20 20
Retained earnings 31,715 30,006
-------- --------
Equity attributable to owners of the parent 33,689 31,928
Non-controlling interest 4,019 3,876
-------- --------
Total equity 37,708 35,804
-------- --------
Chairman's statement
Overview
Record's business growth and prospects, being directly
associated with the behaviour of global currency markets, are
perhaps more intimately associated with the global macro position
and outlook than businesses in other sectors. Hence it seems
appropriate to briefly review the macro backdrop.
The year has been one of hesitant growth for the global economy
and uncertainty in financial markets. Market sentiment continues to
be driven more by political events and expectations around central
bank policy than by longer-term economic factors. The effect on
currency markets has been continued uncertainty and volatility in
exchange rates.
The power of central banks and monetary policy makers to further
stimulate domestic economies may, however, be approaching its
limit, with quantitative easing and interest rate policies
seemingly failing to boost growth and prevent deflation. In the US,
for example, expectations of early interest rate rises during 2015
in response to US growth were eventually rewarded by the Federal
Reserve raising rates in December 2015, with the expectation that
further increases would follow further growth, which failed to
materialise. The US dollar weakened over the year against most G10
currencies.
Similarly, in the UK, expectations of interest rate tightening
diminished over the course of the year amidst concerns over growth
and inflation. Sterling generally weakened during the year versus
most other G10 currencies, weighed down further by concerns over
the EU referendum towards the end of the year. More recently, in
Japan, financial markets responded badly to the Bank of Japan's
announcement of negative interest rates, in an attempt to boost
growth and inflation levels. The consequent strength of the yen in
the currency markets was the opposite reaction to that
intended.
It is clear that global growth remains fragile, inflation
elusive and the expectation for further interest rate tightening
has, for now, abated. In such an environment, being able to sustain
the levels of growth seen over the last two years has proved a
challenge, but the business remains cognisant of its primary
objectives of working hard to meet client demand for robust and
innovative currency solutions and of creating long-term shareholder
value.
Financial highlights
Client numbers grew for the fourth consecutive year, ending the
year at 58 clients (2015: 55 clients). AUME fell marginally by 3%
to $53.7 billion (2015: $55.4 billion) including net outflows for
the year of $2.3 billion. Our Currency for Return products
experienced net outflows for the year of $3.0 billion, represented
principally by the tactical bespoke mandate previously identified
as volatile. This was offset by net inflows to Passive Hedging of
$1.8 billion, which now represents 82% of total AUME.
Revenues for the year were maintained at GBP21.1 million (2015:
GBP21.1 million). Management fees increased to GBP20.9 million
(2015: GBP20.3 million) predominantly due to the increase in
Passive Hedging fees arising from the full year impact of the
increases in Passive Hedging AUME reported in the latter part of
last year. An increase in Currency for Return fees to GBP3.2
million (2015: GBP2.8 million) was primarily due to the increased
size of the bespoke tactical mandate during the year, although this
mandate saw outflows in the latter part of the year triggered by
market movements. Performance fees of GBP0.3 million (2015: GBP0.5
million) crystallised at the end of the financial year.
Total expenditure increased in line with expectations to GBP14.1
million (2015: GBP13.4 million) following the 10% increase to fixed
remuneration awarded from May 2015, although this was partially
offset by the reduction of 6% in variable remuneration. The
operating margin of the Group decreased to 32% (2015: 36%), flowing
through to a decrease in profit before tax of 10% to GBP6.9 million
(2015: GBP7.7 million). Basic earnings per share decreased by 4% to
2.55 pence (2015: 2.66 pence).
Dividend
Over recent years, our dividend policy has been both consistent
and transparent with a view to achieving a level of dividend which
is at least covered by earnings and which allows for sustainable
dividend growth by the business in line with the trend in
profitability. The dividend was increased by 10% last year to 1.65
pence per share in line with business performance.
The Board is recommending a final ordinary dividend of 0.825
pence per share. The total ordinary dividend in respect of the year
ended 31 March 2016 of 1.65 pence per share is unchanged on the
previous year and in line with our intention as stated in this
year's interim report. Subject to shareholders' approval, the
dividend will be payable on 3 August 2016 to shareholders on the
register at 1 July 2016.
For the current financial year, the Board's expectation, subject
to business conditions, is to maintain the total ordinary dividend
at 1.65 pence per share, which the Board would expect to be payable
equally in respect of an interim and a final dividend. However, 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, such that the total ordinary dividend may be more
or less than 1.65 pence per share.
Since listing nearly nine years ago, the Board has been
attentive to its responsibilities in building and maintaining a
strong and sustainable balance sheet, ensuring the business is able
to invest selectively in future growth whilst maintaining cash
resources sufficient to support its needs. The Board intends to
continue its pragmatic approach; however it now considers the
Group's balance sheet and regulatory capital buffer sufficiently
strong to support the consideration of returning at least part of
any excess of future earnings per share over ordinary dividends to
shareholders, potentially in the form of special dividends.
The Board considers ordinary dividends plus other distributions
to shareholders on a "total distribution" basis, such that the
total distribution for any year is at least covered by earnings. On
this basis, the decision as to the level of any excess earnings
over ordinary dividends to be returned to shareholders for the
current financial year will be subject to the financial performance
of the business and the market conditions at the time.
Group strategy
The Group's strategy remains focused on building long--term,
sustainable growth of the business through excellent client service
and relationships.
Challenging environments such as these require flexibility of
approach and constant innovation. The Directors consider one of the
Group's key strengths is its capability to adapt products,
processes or distribution methods, or to change its approach to
suit individual and sometimes exacting client requirements.
Such flexibility and innovation was demonstrated during the year
through the Group's new licensing agreement with WisdomTree
Investments, Inc. - more detail for which is given in the Chief
Executive's statement. Whilst the product is still in its early
stages, we are hopeful that this will facilitate access to an
active hedging strategy for a wider audience than has previously
been the case and we look forward to building the relationship
further with WisdomTree.
The Group has a solid foundation of Passive Hedging clients
which provides a strong and stable revenue stream - for the first
time Passive Hedging management fees now account for a higher
proportion of total management fees than Dynamic Hedging. The Board
is conscious of the advantages brought in having a diversified
revenue stream and is strategically focused on making the most of
opportunities for diversifying through different products, clients
and geographies going forward, subject to prevailing market
conditions.
The Board
On 14 September 2015, we announced the appointment of Jane
Tufnell to the Board as an independent non-executive director and
more recently, on 1 June 2016, the appointment of Rosemary Hilary
as an independent non-executive director. Jane co-founded the
investment management firm Ruffer in 1994 and served on its
management board until June 2014. Rosemary is a qualified
accountant and has held senior positions in audit, risk and
financial services regulation and she will become the chair of the
Audit and Risk Committee following the resignation of Cees
Schrauwers in September 2016. Both Jane and Rosemary bring a wealth
of relevant experience from their respective careers and we look
forward to working closely with them both and in benefitting from
their valuable insight and business acumen.
From November of this year, two of our non-executive directors,
Cees Schrauwers and Andrew Sykes, will no longer be deemed
independent, having joined Record just prior to IPO in December
2007, and both will be retiring from the Board. Both Cees' and
Andrew's knowledge and experience have been fundamental to the
smooth transition of Record from a private company to a
premium-listed public company, helping to ensure the appropriate
client-centric and risk-focused culture is fully embedded across
the business. I would like to take this opportunity to thank them
both for their commitment to the firm, and their invaluable advice
and guidance over the past nine years. Their service on the Board
has encompassed difficult times for both the firm and the global
economy, and they have both been pillars of wisdom and common
sense.
Outlook
Fragility in global economic growth alongside continued
geopolitical tensions and such influential events as the UK
referendum and the forthcoming presidential election later this
year in the US will no doubt continue to contribute to volatility
in the currency markets.
As well as significant challenges, such environments provide
opportunities for further engagement and by gaining a broader
picture of our clients' investment objectives, their portfolios and
constraints, we have the opportunity to understand more fully their
currency-related issues and specific requirements. Whether the
answer lies with using our more standard hedging or currency for
return products or whether circumstances require a more bespoke
approach, we believe we have the people, systems, flexibility and
capability to provide a solution.
The business is well placed to face such challenging
environments and to take advantage of the opportunities arising
with a strong, committed team of professionals and a robust
financial position.
On behalf of the Board, I would like to thank everyone at Record
for their hard work and commitment during this year and I look
forward to facing the challenges, and taking advantage of the
opportunities that lie ahead.
Neil Record
Chairman
Chief Executive Officer's statement
Record is reporting growth in both client numbers and management
fees. The one-off 10% increase in firm-wide salaries in May 2015
has caused profits to diminish compared to the prior period. AUME
has also declined modestly over the period, and net outflows from a
tactical bespoke mandate have reduced the Group's
revenue-generating AUME base at year end compared to that at the
start of the year.
The market environment has become more challenging, with a
general absence of persistent themes of individual currency
strength or weakness, narrowing expectations of interest rate
differentials, and a prolonged decline in emerging market
currencies. As a result, a wide divergence of views has emerged
amongst investors as to their preferences in managing currency risk
and opportunity. In response, the Group continues to focus on
developing flexible currency management strategies that can be
tailored to the diverse interests and objectives of investors.
Market overview
The twelve months to 31 March 2016 have seen a weakening of
expectations for divergence in monetary policy and interest rates.
Policy measures such as quantitative easing also seem to have
become less effective in influencing exchange rates. These trends
have been accompanied by periodic regional and supra-regional
concerns and crises.
Monetary policy divergence has not materialised in the financial
year to the extent which had been anticipated. Concerns over the
pace of economic growth, global deflation and financial market
volatility have led policymakers to exercise greater caution over
increasing interest rates. The US Federal Reserve did raise rates
in December 2015, but expectations for further rate rises
subsequently declined, and the US dollar's path has reflected this
uncertainty. The Bank of England has also avoided raising rates,
with uncertainty over the forthcoming EU referendum adding to this
caution.
In those economies that have continued to pursue quantitative
easing, principally the Eurozone and Japan, the effectiveness of
this policy in influencing exchange rates has become less evident.
Both the euro and the Japanese yen appreciated against the US
dollar at times throughout the financial year.
Events that developed on regional and supra-regional scales
include the re-emergence of strains in the Eurozone in the first
three months of the period, widespread declines in emerging market
currencies in the first nine months, and the announcement of the EU
referendum in the final three months of the year.
Investment performance
Both US- and UK-based Dynamic Hedging clients experienced
cumulative weakening of their base currencies against a basket of
exposure currencies over the financial year. As a result, clients
benefitted from currency gains in their underlying portfolios.
Declining hedge ratios in their programmes reduced the extent to
which hedging losses offset these gains.
Some of our Currency for Return strategies, namely Forward Rate
Bias and Emerging Market, have historically performed better in
market environments that are supportive of risk-seeking strategies.
Both of these strategies generated negative returns for the year.
In the case of Forward Rate Bias strategies, this is largely
attributable to declining expectations of interest rate divergence
and the reduced effect of quantitative easing in weakening low
interest rate currencies. In the case of Emerging Market, this is
attributable to the marked declines seen across many emerging
market currencies over nine months of the year.
For the more diversifying strategies, Value performed markedly
positively over the year, in part benefitting from the same
appreciation of Japanese yen and euro that proved costly in Forward
Rate Bias strategies. Momentum modestly underperformed over the
year, contributing to net negative returns in live Multi-Strategy
mandates.
Asset flows and financial performance
AUME declined by 3% over the financial year to $53.7 billion.
Net outflows of $2.3 billion can be attributed entirely to Currency
for Return outflows of $3.0 billion, the majority of which came
from a long-standing tactical bespoke mandate. Net hedging inflows
of $0.8 billion can be separated into Passive Hedging inflows of
$1.8 billion and Dynamic Hedging outflows of $1.0 billion. Client
numbers grew modestly to 58. External factors (i.e. equity and
other market movements and the impact of exchange rates over the
period) contributed $0.6 billion.
The benefit of the higher revenue margin Currency for Return
mandate during the period, while temporary, allowed underlying(1)
revenues to increase by 2% to GBP21.3 million. Costs before Group
Profit Share remuneration grew by 9%, most of which can be
attributed to the firm-wide 10% salary increase from 1 May 2015.
Continued discipline in other cost areas allowed the Group to
record an underlying operating margin of 33%, underlying profit
before tax of GBP7.0 million, and basic earnings per share of 2.55
pence.
Strategic progress
Record's strategic progress over the year can be measured
against each of the objectives set out in the preceding years'
Annual Reports.
Client relationships - we have further grown client numbers, and
grown our mandates with certain existing clients, although other
mandates have declined. Our strategy of building trusted individual
relationships with clients and their advisors remains unchanged.
During the year we have seen a wide divergence of views amongst
investors as to their preferences in managing currency risk and
opportunity. We seek to engage with these preferences wherever
possible.
Innovation - enhancement of existing products and development of
new ones is a constant feature at Record, driven by clients' needs
and market opportunities. During the year the Group entered into a
licensing agreement with WisdomTree Investments, Inc. to provide
signals that will be used to dynamically hedge currency exposures
within WisdomTree's rules-based index family. The Group is
optimistic that this development will allow active hedging
strategies to be accessible to a wider range of investors than
before.
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. Mid-career lateral hires tend
to be less frequent, given the highly-specialised nature of the
Group's work. 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, and since the end
of the period we have moved our US office from Atlanta to New York,
and have entered into a new lease for our office in Windsor.
Growth - we have achieved growth in client numbers, management
fees and underlying revenues. AUME and profits have declined
modestly over the period, due to net outflows from a tactical
bespoke mandate in the former case, and the firm-wide 10% salary
increase in the latter case. We continue to focus on growth from
our core markets of North America, continental Europe, in
particular Switzerland, and the United Kingdom, while exploring new
markets.
Risk management - we continue to develop and invest in systems,
people and processes to manage the operational risk that we assume
from clients. The Group has continued to commit resources to
emerging regulatory requirements, including transaction reporting
and other disclosures, and the forthcoming revisions to the
European Market Infrastructure Regulation and the Markets in
Financial Instruments Directive. Since the end of the financial
year, we have launched a new system to improve further our
management of the wide diversity and volume of Hedging
mandates.
Profitability - the Group's underlying profitability has
declined modestly with an underlying operating margin of 33%. This
decline can be attributed to the need to maintain competitive
remuneration for skilled staff.
Outlook
In a more challenging market environment, a wide divergence of
views has emerged amongst investors as to their preferences in
managing currency risk and opportunity. In response, the Group
continues to focus on developing flexible currency management
strategies that can be tailored to the diverse interests and
objectives of investors.
Our clients continue to experience a low yield environment,
regulatory changes, and particularly for pension funds cash flow
pressures. As a result, the need to manage increasingly scarce cash
and liquidity resources is becoming more important than ever
before. Record has long offered certain tools to support this, such
as planning cash flows arising from a hedging programme, or
managing a futures overlay to minimise the drag on returns from a
cash allocation. We intend to explore more tools, strategies and
products, and to engage with more clients on these, as the market
environment continues to develop.
Record's management continues to be very aware of the benefits
of diversification within and across our strategies. Management and
staff remain wholly focused on managing programmes to meet our
clients' best interests, and growing the business to create value
for shareholders.
James Wood-Collins
Chief Executive Officer
[1] 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.
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 2016 2015 2014 2013 2012
AUME at 31 March $53.7bn $55.4bn $51.9bn $34.8bn $30.9bn
- US dollars
Client numbers
at 31 March 58 55 48 44 41
Underlying(1)
operating profit
margin 33% 35% 33% 31% 32%
Basic earnings 2.55 2.66 2.48 1.98 2.23
per share ("EPS") p p p p p
-------- -------- -------- -------- --------
[1] 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.
How we performed this year
-- AUME remained broadly consistent with the prior year. Net
outflows totalled $2.3 billion for the year, with an overall
decrease in AUME of 3% in the year.
-- Client numbers grew for the fourth consecutive year and
reached 58 at the end of the year.
-- Underlying operating profit margin decreased to 33% from 35%
predominantly due to competitive upward pressure on fixed
remuneration.
-- Increases in fixed remuneration costs contributed to a 4%
decrease in EPS for the year.
Business review
Market review
The most prevalent theme in FX markets in the twelve months to
31 March 2016 has been the weakening of expectations for divergence
in monetary policy and interest rates, coupled with the apparent
diminishing effectiveness, in particular on exchange rates, of
policy measures such as quantitative easing. This theme has been
accompanied by periodic regional and supra-regional concerns and
crises, including the re-emergence of strains in the Eurozone in
the first three months of the period, widespread declines in
emerging market currencies in the first nine months, and the
announcement of the referendum as to whether the UK should remain
in or leave the European Union in the final three months of the
year.
This section comments on the impact of these on exchange rates
and on Record's strategies.
Monetary policy and interest rates
Major developed market central banks, in particular those of the
United States, the Eurozone, the United Kingdom, Japan and
Switzerland, had consistently imposed unusually low interest rates
as a coordinated response to the global financial crisis of the
last decade. For much of the two preceding financial years, the
debate had grown over the pace and extent to which this convergent
monetary policy would start to diverge, with the United States
Federal Reserve and the Bank of England expected to be in the
forefront of tightening interest rates, and the European Central
Bank, Bank of Japan and Swiss National Bank all continuing to
pursue low interest rates and in the first two cases associated
policies such as asset purchases, or "quantitative easing".
Monetary policy divergence has not materialised in the financial
year to the extent which had been anticipated, as concerns over the
pace of economic growth, global deflation and financial market
volatility have led policymakers to exercise greater caution over
increasing interest rates. Furthermore in those economies that have
continued to pursue quantitative easing, the effectiveness of this
policy has become less evident.
In the United States, the Federal Reserve had been expected
first to increase interest rates at its September 2015 meeting, but
chose not to do so, noting that "economic conditions did not
warrant an increase". The Federal Reserve did raise the federal
funds rate by 0.25% at its December 2015 meeting, but its own
expectations for further rate rises in 2016 subsequently declined.
The US dollar's path reflected this uncertainty, with broad-based
weakening against developed market currencies in the first three
months of the period (and following strong dollar appreciation in
the prior financial year), strengthening against developed market
currencies in the following six months in anticipation of
long-awaited interest rate rises, and then weakening again in the
last three months of the period, as expectations of further rate
rises waned.
The Bank of England has been similarly reticent in raising
interest rates, with any prospect for increases deferred due to
concerns over the pace of economic growth, the absence of material
inflation, the impact on financial markets, and towards the end of
the period the uncertainty caused by the announcement of the
referendum on whether the United Kingdom should remain in or leave
the European Union (see "EU referendum" below). While sterling
strengthened against a basket of developed market currencies in the
first three months of the period, it weakened over the rest of the
financial year.
The European Central Bank and the Bank of Japan have both
continued to pursue low interest rates and asset purchase
programmes throughout the year, with both having sought to amplify
these programmes during the year. However, in both cases, the
effectiveness of these policies in stimulating either demand for
borrowing or export growth through currency depreciation has become
less evident, with both the euro and the Japanese yen appreciating
against the US dollar at times throughout the financial year,
including in both cases the last quarter.
The Swiss National Bank has continued to pursue an interest rate
path dictated by its domestic objectives. There has been no repeat
of the dramatic events of January 2015, when the Swiss National
Bank unexpectedly removed the ceiling on the value of the Swiss
franc against the euro in parallel with cutting certain interest
rates, which immediately caused the Swiss franc to appreciate
dramatically. The Swiss National Bank has continued its policy of
negative interest rates, and Swiss franc exchange rates have
continued largely to respond to changing interest rate expectations
for other developed market currencies.
Regional and supra-regional events
The year to 31 March 2016 also saw a number of events develop on
regional and supra-regional scales, with varying effects on
currency markets. The first notable such event was the re-emergence
in the summer of 2015 of the Eurozone crisis, catalysed by the
failure of the Greek government to make a payment to the
International Monetary Fund on 30 June 2015. This led to a
referendum and the ostensible rejection of austerity by the Greek
population, and notwithstanding this a renegotiation on the terms
of the Greek debt restructuring followed by a further election. As
seen in previous incarnations, the effect on the value of the euro
itself was muted, with perhaps the greatest consequence being
official recognition that a departure by a member state of the
Eurozone is not after all inconceivable.
More notable in currency markets was the rolling crisis in
emerging market currencies through the first nine months of the
financial year. What began as a familiar period of risk aversion in
the first three months escalated in the second three months, most
closely associated with China's unexpected 1.9% devaluation of the
renminbi on 11 August 2015. The relatively modest scale of this
adjustment and hence its impact on currency markets belied the
message it sent on prospects for growth in China, China's
macroeconomic policies, and emerging market economies more broadly,
leading to a pronounced two weeks of equity and currency market
volatility. Those currencies more sensitive to commodity prices, or
suffering specific political risk concerns, continued to weaken
through the third quarter of the financial year.
Towards the end of the financial year, the anticipated
referendum on whether the UK should remain in or leave the European
Union was announced for 23 June 2016. The effect of this
announcement on currency markets, Record's strategy to mitigate its
impact on clients, and possible effects on Record's business are
set out under "EU referendum".
Regulation
FX markets continue to come under greater regulatory scrutiny
than has been the case historically. As a specialist currency
manager whose interests are completely aligned with those of its
clients, Record is wholly supportive of appropriate regulation to
ensure the fair, effective and open functioning of currency
markets, and we seek to engage with regulators, industry bodies and
others to represent effectively our clients' interests.
In particular, we are now seeing the fruition of several years'
regulatory focus on derivatives markets, dating back to the "Group
of 20" meeting in Pittsburgh in September 2009. These derivative
market reforms are taking shape in different jurisdictions, of
which the European Union (through the European Market
Infrastructure Regulation, or "EMIR"), the United States (through
the Dodd-Frank Wall Street Reform and Consumer Protection Act, or
"Dodd-Frank"), Switzerland and Canada are amongst those most
relevant to Record.
We are therefore concerned about emerging differences in
regulation across these jurisdictions which may seem minor in the
context of the overall regulatory picture, but which may have a
disproportionate effect on Record given the nature of our business.
In particular, we are concerned that whilst deliverable foreign
exchange forward contracts have been exempted from the definition
of "swaps" under Dodd-Frank and hence from much of the consequent
regulation, the latest draft rules under EMIR continue to mandate
variation margin for foreign exchange forward contracts entered
into by financial counterparties, which include pension funds.
Mandating variation margin is a major change from the historic
practice of many of Record's clients of using non-collateralised
foreign exchange credit lines. We are working hard to minimise any
adverse impact on our business, both by continuing to engage
wherever possible on these proposed rules, and by working with our
clients, bank counterparties and service providers to manage the
impact should this engagement prove unsuccessful.
Effects on Record's strategies
The environment of varying but declining expectations of
monetary policy divergence brought about a year in which simple
stories of persistent currency strength or weakness were largely
absent. Instead most major developed market currencies experienced
bouts of strength and weakness throughout the year.
In this environment, Record's Dynamic Hedging strategies
responded with hedge ratios increasing in response to base currency
strength, and decreasing in response to base currency weakness. The
cumulative effect over the financial year for both US- and UK-based
investors was of weakening of their base currencies, and hence
currency gains being generated in their underlying portfolios.
Declining hedge ratios in Dynamic programmes reduced the extent to
which hedging losses offset these gains.
With respect to return-seeking currency strategies, an
environment of diminishing expectations for interest rate
differentials, coupled with a year which saw a prolonged decline in
emerging market currencies, would be expected to challenge the two
most persistent return sources in Record's range of strategies, and
indeed the financial year saw negative performance in both Forward
Rate Bias or "carry" strategies and in Emerging Market
currencies.
In such an environment we would look to Momentum and Value to
offer some diversification. This was true of value during the
period, although less so of Momentum, and the combination served
partially to offset losses from Forward Rate Bias and Emerging
Market strategies in Record's Multi-Strategy products.
One persistent theme triggered by the continuing low yield
environment, regulatory changes, and cash flow pressures
experienced by clients is the need to manage increasingly scarce
cash and liquidity resources to meet more diverse requirements than
before. Some aspects of this are long-standing parts of Record's
product offering, and we intend to explore further complementary
strategies and products, and to engage with more clients on these,
as the market environment continues to develop.
In a more challenging market environment, Record continues to
focus on developing flexible currency management strategies that
can be tailored to the diverse interests and objectives of
clients.
EU referendum
On 20 February 2016, and following a European Union summit,
Prime Minister David Cameron announced that the referendum on
whether the United Kingdom should remain in or leave the EU would
be held on 23 June 2016.
Record plc does not take a stance on political decisions, and
hence the Group does not intend to contribute to or participate in
the debate. Instead our focus, at the time of writing, is on the
impact that the referendum has had on currency markets, and the
impact that it might have on our clients and on the Group's
business.
With respect to currency markets, sterling exchange rates
broadly weakened following February's announcement, although as
ever it is impossible to attribute any market movements to a single
cause. Implied volatility as indicated by the pricing of options
has risen, particularly for those options with a maturity period
which includes the referendum date. This indicates that markets
anticipate the risk of more volatile exchange rates in response to
the outcome of the vote. More specifically, the price of options
that protect against sterling weakening has risen more than those
that protect against sterling strengthening, suggesting that the
market sees more risk of sterling weakness.
In the absence of any directional view on sterling beyond that
already priced into the market, the Group's approach to managing
the impact on clients will be to anticipate periods of elevated
volatility, and to take steps to manage the impact of these on our
clients. In particular this means avoiding trading where possible
in periods we can expect to be volatile to avoid outsized cash
flows and transaction costs and helping clients plan for liquidity
requirements where these arise between cash flows.
At the date of this report, and beyond the immediate impact of
the referendum on currency markets and on clients, it is too soon
to anticipate broader effects on Record's business, not least given
the prolonged negotiation period that would follow any vote to
leave. We would note though that Record and its clients are subject
to extensive EU-originated legislation. That which affects our
business most closely can broadly be divided into regulatory
legislation such as the Markets in Financial Instruments Directive
("MiFID") and the European Market Infrastructure Regulation
("EMIR"), and enabling legislation which allows cross-border
financial services such as MiFID again, the Alternative Investment
Fund Managers Directive ("AIFMD") and Undertakings for Collective
Investment in Transferable Securities ("UCITS").
We would note that much of the former has its origins in global
initiatives such as the "Group of 20" to which the UK is an
independent signatory, so it may be unrealistic to expect that this
would not be replaced domestically in the event of a UK departure
from the EU. Much of the latter brings material commercial benefits
to the UK's investment management industry, such that maintenance
of equivalent arrangements may well be one objective of any
post-referendum negotiation.
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 last year, mandates for our US and
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.
UK investors generally saw underlying gains from currency over
the year as sterling weakened against most G10 currencies, leading
to higher sterling valuations for foreign currency investments.
UK--based Dynamic Hedging programmes systematically decreased hedge
ratios over the year in response to sterling weakness to protect
against hedging losses. Following the initial strengthening of
sterling in the second quarter of 2015, hedge ratios decreased in
line with sterling weakness as global and domestic EU
referendum-related risks weighed on the currency, thus containing
hedging losses and allowing UK investors to capture gains in the
underlying overseas exposures.
US investors also saw gains from currency on international
assets when valuing positions in US dollars, as the US dollar
weakened against most G10 currencies following a downward repricing
of market expectations for US interest rates in 2016. Record's
Dynamic Hedging product varied hedge ratios over the year in
response to the US dollar's movements and as a result, costs from
hedging were controlled relative to the underlying currency
gains.
Record had a number of "live" Currency for Return products in
the year. The Active Forward Rate Bias ("FRB"), 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.
Active FRB or FRB10 Index, Emerging Market, Momentum and Value can
also be combined to create the Record Currency Multi--Strategy
product.
For the Active FRB product, the core investment process - the
Trend/Forward Rate Bias strategy - aims to buy selected developed
market higher interest rate currencies and sell selected lower
interest rate currencies and to manage these positions with a view
to controlling downside risk. Historically this investment approach
has shown positive returns due to the existence of the Forward Rate
Bias and trending movements in selected currency pairs. The year
saw negative returns mainly due to the short position in the
Japanese yen which appreciated sharply as declining inflation
expectations in Japan improved the perceived real return available
on Japanese assets. A complementary investment process - the Range
Trading strategy - generated a positive return as selected currency
pairs tended to mean revert, partially offsetting the
underperformance of the FRB strategy.
Similarly, the Forward Rate Bias Index product, which uses more
diversified allocations without active risk control, produced
negative returns as low interest rate currencies appreciated.
Record remains committed to our belief that over time currency, and
in particular the FRB strategy, can be a persistent and
uncorrelated source of returns for investors, and that the FRB will
continue to generate long--term returns.
Record's Emerging Market Currency Fund generated negative
returns over the period as emerging market currencies generally
depreciated against a basket of developed market currencies.
Returns in the fund were mainly attributable to the depreciation of
certain "risk-on" currencies between March and December 2015,
including the South African rand, Colombian peso, and Brazilian
real which were impacted by a fall in global commodity prices and
slowing Chinese growth.
Record's Multi--Strategy mandates combining Active FRB or FRB10,
Emerging Market, Momentum and Value strategies delivered negative
performance over the period. Losses were driven by returns in the
Emerging Market, FRB, and Momentum strands, although these were
partially offset by gains in the Value strategy. In the Value
strategy, a reversion towards value on behalf of the euro and yen -
notwithstanding efforts by respective central banks to encourage
easier monetary policy - primarily drove positive returns. Short
positions in the New Zealand, Canadian, and Australian dollars
during mean-reversionary periods delivered negative returns in the
Momentum strand but were partially offset by a long position in the
Japanese yen, and a short position in sterling as EU referendum
worries surfaced towards the end of the period.
Returns data for Currency for Return strategies
Return for 12 months to Volatility since
31 March 2016 Return since inception inception
Fund name Gearing % % p.a. % p.a.
-------- -------------------------- ----------------------- --------------------------
FTSE FRB 10 Index Fund(1) 1.8 (4.12%) 1.01% 7.76%
Emerging Market Currency
Fund(2) 1 (2.70%) 0.00% 6.69%
-------- -------------------------- ----------------------- --------------------------
Return for 12 months to Volatility since
31 March 2016 Return since inception inception
Index/composite returns % % p.a. % p.a.
--------------------------- -------- -------------------------- ----------------------- --------------------------
Alpha composite(3) (1.92%) (0.12%) 3.05%
FTSE Currency FRB10 GBP
Excess return(4) (2.38%) 2.27% 4.68%
Currency Value(5) 3.08% 3.36% 3.31%
Currency Momentum (6) (0.54%) 1.76% 3.22%
Record Multi--Strategy
with Alpha FRB product(7) (0.89%) 1.08% 2.09%
--------------------------- -------- -------------------------- ----------------------- --------------------------
[1] FTSE FRB10 Index Fund return data is since inception in
December 2010, GBP base.
2 Record Currency - Emerging Market Currency Fund return data is
since inception in December 2010, GBP base.
3 Alpha composite data is since January 2003, USD base.
4 FTSE Currency FRB10 GBP Excess return data is since December
1987, GBP base.
5 Currency Value return data is since inception in July 2012,
CAD base.
6 Currency Momentum return data is since inception in July 2012,
CAD base.
7 Record Multi--Strategy return data is since inception in July
2012, CAD base.
Gearing
The Currency for Return product group allows clients to pick 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.
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
The Group has seen an overall decrease in AUME of $1.7bn (-3%)
to finish the year at AUME of $53.7bn compared with $55.4bn at the
end of the previous year.
When expressed in sterling, AUME increased marginally by
GBP0.1bn to GBP37.4bn (2015: GBP37.3bn).
AUME development ($bn)
Opening Net client Markets FX effects Closing
AUME at inflows AUME at
1 April 31 March
2015 2016
55.4 -2.3 +0.4 +0.2 53.7
----------- -------- ----------- ----------
AUME movements
The Group has seen net outflows of $2.3bn during the year
arising from inflows from both new and existing clients of $10.7bn
offset by outflows of $13.0bn.
Dynamic Hedging AUME experienced net outflows of $1.0bn, ending
the year at $7.9bn (2015: $9.2bn). The selection for a new Dynamic
Hedging mandate expected to reach approximately $600m was announced
in September 2015, but was subsequently suspended in January 2016
pending a potential restructuring by the client and represented an
outflow of $500m. The loss of a UK Dynamic Hedging programme was
reported in October 2015 and represented an outflow of $1.2bn
following the client's decision to switch to a Passive Hedging
strategy.
Growth of Passive Hedging AUME continued and reached $43.8bn
(2015: $41.2bn) by the end of the year, an increase of 6%. Net
inflows of $1.8bn were from a combination of new and existing
clients with the net impact of external factors contributing a
further $0.8bn.
Significant outflows from a bespoke tactical mandate previously
identified as potentially volatile in size aggregated to $3.0bn,
and represented the majority of the decrease in Currency for Return
AUME during the year from $4.8bn to $1.8bn.
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 Currency for Return mandates, are linked
to equity and other market levels. Market performance increased
AUME by $0.4bn in the year to 31 March 2016.
Further detail on the composition of assets underlying our
Hedging 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
2016
Equity % Fixed income % Other %
Dynamic Hedging 77% 0% 23%
Passive Hedging 27% 50% 23%
--------- --------------- --------
Forex
The percentage of the Group's AUME which is non--US dollar
denominated is 91%. The foreign exchange impact of the conversion
of non--US dollar mandate sizes into US dollar AUME had the impact
of increasing AUME by $0.2bn over the year. This movement does not
have an equivalent impact on the sterling value of fee income.
At 31 March 2016, the split of AUME by base currency was 21% in
sterling, 64% in Swiss francs, 9% in US dollars, 6% in euros and
less than 1% in Canadian and Singapore dollars.
Product mix
AUME composition by product
31 March 16 31 March 15
US $bn % US $bn %
------- ------- -----
Dynamic
Hedging 7.9 15% 9.2 17%
Passive
Hedging 43.8 82% 41.2 74%
Currency
for Return 1.8 3% 4.8 9%
Cash 0.2 --% 0.2 --%
------- ----- ------- -----
Total 53.7 100% 55.4 100%
------- ----- ------- -----
The growth in Passive Hedging AUME continues the upward trend of
recent years, although the percentage of total AUME represented by
Passive Hedging of 82% (2015: 74%) at 31 March 2016 is more
pronounced due to the large aggregate net outflows of $3bn from
Currency for Return during the year, as noted above. During the
year, a UK Dynamic Hedging client made the decision to switch to a
Passive Hedging mandate, which resulted in a Dynamic Hedging
outflow of $1.2bn during the year. Consequently the proportion of
total AUME represented by Dynamic Hedging decreased at 31 March
2016 to 15% (2015: 17%). Currency for Return represented 3% (2015:
9%) of total AUME at 31 March 2016.
Client numbers
Client numbers grew for the fourth consecutive year, reaching 58
clients at 31 March 2016 (2015: 55), representing a net gain of
three clients over the year.
AUME composition by product and base currency
Dynamic Hedging Passive Hedging Currency for Return
Base currency 31 March 16 31 March 15 31 March 16 31 March 15 31 March 16 31 March 15
------------ ------------ ------------ ------------ ------------ ------------
Sterling GBP 1.9bn GBP 2.7bn GBP 5.9bn GBP 4.7bn - GBP 0.1bn
US dollar USD 3.5bn USD 3.2bn USD 0.4bn USD 0.2bn USD 0.7bn USD 3.6bn
Swiss franc CHF 1.5bn CHF 1.9bn CHF 30.6bn CHF 30.3bn CHF 0.8bn CHF 0.7bn
Euro - - EUR 2.6bn EUR 2.4bn - -
Canadian dollar - - - - CAD 0.3bn CAD 0.3bn
Singapore dollar - - SGD 0.1bn SGD 0.1bn - -
------------ ------------ ------------ ------------ ------------ ------------
Financial review
In a challenging year, the Group's total revenue remained at a
level unchanged on last year of GBP21.1m. Management fees for the
year were up 3% to GBP20.9m (2015: GBP20.3m), maintained in part
due to the Currency for Return fees generated from the tactical
bespoke mandate prior to the associated net outflows occurring in
the latter part of the year.
The business continues to focus on the tight control of costs.
However, the decision to increase salaries firm-wide by 10% from
May 2015 outside of the normal salary review round was made to
recognise the trend towards higher fixed remuneration in financial
services in order to ensure the business offers competitive
remuneration to attract and retain high calibre employees. As
expected, this contributed the majority of the increase seen in
personnel costs of GBP0.8m (13%) for the year.
Non-personnel costs were successfully controlled, ending the
year marginally higher at GBP4.3m (2015: GBP4.2m), and the Group
Profit Share ("GPS") cost decreased by 6% to GBP3.0m, reflecting
the decrease in underlying operating profit (excluding GPS).
Compared to the prior year, operating profit margin reduced to
32% (2015: 36%) mainly as a consequence of the increase in
personnel costs, offset marginally by the reduction to the Group
Profit Share cost.
Profit before tax decreased from GBP7.7m to GBP6.9m for the
year.
Profit and loss (GBPm) 2016 2015
Revenue 21.1 21.1
Cost of sales (0.2) (0.2)
------- -------
Gross profit 20.9 20.9
Personnel (excluding Group Profit Share Scheme) (6.8) (6.0)
Non--personnel cost (4.3) (4.2)
------- -------
Total expenditure (excluding Group Profit Share Scheme) (11.1) (10.2)
Group Profit Share Scheme (3.0) (3.2)
------- -------
Operating profit 6.8 7.5
------- -------
Operating profit margin 32% 36%
Net interest received 0.1 0.2
------- -------
Profit before tax 6.9 7.7
Tax (1.5) (1.7)
------- -------
Profit after tax 5.4 6.0
------- -------
Revenue
Record's revenue is principally management fees earned from the
provision of currency management services.
Revenue analysis (GBPm) 2016 2015
Management fees 20.9 20.3
Performance fees 0.3 0.5
Other income (0.1) 0.3
------ -----
Total 21.1 21.1
------ -----
Record charges 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 invoices management fees for some
of its larger clients on a monthly basis.
Management fees
Management fee income earned during the year was GBP20.9m,
GBP0.6m ahead of the previous year (2015: GBP20.3m).
The steady growth seen in recent years in Passive Hedging
management fees has continued, with the full-year impact of last
year's net inflows increasing Passive Hedging revenue to GBP9.4m
(2015: GBP8.1m).
Dynamic Hedging management fees decreased by GBP1.1m
predominantly due to the loss of the Dynamic Hedging mandate
previously announced alongside adjustments to existing
mandates.
The management fees earned from Currency for Return mandates in
the year were bolstered from inflows into the tactical bespoke
mandate announced in March 2015, resulting in an increase in
Currency for Return management fees to GBP3.2m (2015: GBP2.8m) for
the year. Subsequent outflows were announced from this specific
mandate in the second half of the year.
Passive Hedging increased to 45% (2015: 40%) of total management
fees. Dynamic Hedging represents 40% (2015: 46%) and Currency for
Return 15% (2015: 14%) of total management fees.
Management fees by product (GBPm) 2016 2015
Dynamic Hedging 8.3 9.4
Passive Hedging 9.4 8.1
Currency for Return 3.2 2.8
----- -----
Total 20.9 20.3
----- -----
Average management fee rates for all product lines have remained
broadly constant throughout the year ended 31 March 2016.
Average management fee rates by product - (bps) 2016 2015
Dynamic Hedging 15 15
Passive Hedging 3 3
Currency for Return 15 16
----- -----
Average management fee rates for Currency for Return products
have marginally decreased as a result of the effect of the earlier
inflows into the bespoke tactical mandate being on a tiered fee
scale, decreasing the overall average fee rate and prior to the
effect of the subsequent outflows.
Performance fees
Performance fees of GBP0.3m were earned in the year, (2015:
GBP0.5m). Performance fees can be earned either from Currency for
Return or Dynamic Hedging programmes, dependent on the individual
client agreement. Record currently has two active mandates
incorporating a performance fee component, both of which are
Dynamic Hedging mandates.
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. It also includes hedging gains/losses on
revenues denominated in currencies other than sterling, and other
foreign exchange gains/losses.
Expenditure
Operating expenditure
The total operating expenditure of the Group was GBP14.1m during
the year ended 31 March 2016, an increase of GBP0.7m or 5% on the
prior year. The increase is due principally to the firm--wide
salary increase of 10% implemented on 1 May 2015, in response to
the general trend of higher fixed remuneration in the financial
service sector. Non--personnel costs have remained broadly in line
with last year at GBP4.3m (2015: GBP4.2m) through careful cost
control. The expectation for the current financial year is of an
increase to occupancy costs arising both from the move of the US
office from Atlanta to New York just prior to 31 March 2016, and
the renewal of the Group's office lease relating to its
headquarters in Windsor, both at higher market rentals than was
previously the case (see note 23 to the financial statements for
further detail). The Group Profit Share cost decreased by GBP0.2m
over the prior year in line with the fall in "underlying"
profitability.
Group Profit Share Scheme
The Group operates a Group Profit Share Scheme such that a
long--term average of 30% of 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
2016, the Group Profit Share Scheme is 30% of pre--GPS operating
profit. This represents GBP3.0m, a decrease of GBP0.2m from the
previous financial year. 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 in
the market following the announcement of interim and full year
financial results.
Operating profit and margins
On a fully consolidated basis, operating profit for the year
ended 31 March 2016 of GBP6.8m was 10% lower than the operating
profit for the previous financial year (2015: GBP7.5m) and the
operating margin was 32% (2015: 36%).
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 GBP6.9m (2015: GBP7.3m) with underlying
profit before tax for the year of GBP7.0m (2015: GBP7.5m).
Cash flow
The Group's year end cash position was GBP21.7m (2015:
GBP12.0m). The cash generated from operating activities before tax
was GBP7.3m (2015: GBP8.0m), with GBP1.6m paid in taxation (2015:
GBP1.6m) and GBP3.7m paid in dividends (2015: GBP3.3m). At the year
end, the Group held money market instruments with maturities
between 3 and 12 months, worth GBP13.0m (2015: GBP18.1m). 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 2015. The Board recommends paying a final
ordinary dividend of 0.825p per share, equivalent to GBP1.8m,
taking the overall ordinary dividend to 1.65p per share, in line
with the prior year (ordinary dividend paid in respect of year
ended 31 March 2015: 1.65p per share).
Subject to shareholder approval, the dividend will be paid on 3
August 2016 to shareholders on the register on 1 July 2016, the
ex--dividend date being 30 June 2016. The dividend cover in the
year was 1.5 (2015: 1.6).
For the current financial year, the Board is considering the
return of at least part of any excess of earnings per share over
ordinary dividends to shareholders, potentially in the form of
special dividends - subject to the financial performance of the
Group for the year and the market conditions at that time.
Financial stability and capital management
The Group's financial position is strong. Consolidated net
assets have grown to GBP37.7m (2015: GBP35.8m) at the end of the
year represented predominantly by assets managed as cash totalling
GBP34.7m (2015: GBP30.1m).
The Board's policy is to retain capital (being equivalent to
shareholders' funds) within the business sufficient to meet
continuing obligations, to meet regulatory capital requirements, to
sustain future growth and to provide a generous buffer against
adverse market conditions. 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 is satisfied that the Group is adequately capitalised
both to continue its operations effectively and to meet regulatory
requirements, due to the size and liquidity of ongoing balance
sheet resources maintained by the Group. Consequently going forward
the Board will consider the return of at least part of any excess
of future earnings over ordinary dividends to shareholders for the
current and future periods, subject to the financial performance of
the Group and the market conditions prevailing at the time.
The Group held regulatory capital resources based on the audited
financial statements as at 31 March, as follows:
Regulatory capital resources (GBPm) 2016 2015
Core Tier 1 capital 33.7 31.9
Deductions: intangible assets (0.3) (0.5)
------ ------
Regulatory capital resources 33.4 31.4
------ ------
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 provision C.2.2 of the UK Corporate
Governance Code, the Directors have assessed the viability of the
Group based on its current business model, the Group's financial
position and strategy, the Board's risk appetite, and the Group's
financial forecasts and its principal risks.
The Board adopts a conservative approach to strategic planning
and capital management, mindful of the need to sustain a strong
financial position and to ensure a robust and liquid balance sheet.
This approach has served the business well over its 33-year
history, allowing the Group the capability to adapt its products
and services to changing market conditions through numerous market
cycles. The Group's strategy and principal risks are assessed in
the normal course of business and in Board discussions and regular
off-site meetings as well as regular review by the Executive
Committee.
The market and regulatory environment in which the Group
operates is constantly evolving and for this reason the Directors
consider it prudent to consider a three year horizon over which to
assess the viability of the Group. This period is consistent with
the Group's approach to preparing its ICAAP, which uses statistical
modelling and robust downside scenarios (stress testing) to
quantify the level of capital required to mitigate the financial
impact on the Group, and on the Group's business model arising from
its principal risks.
The principal risks of the business include operational,
business, liquidity, market and credit risk. The approach to stress
testing includes consideration of a range of factors which may
result in AUME outflows for example, a general market downturn or a
large operational risk event.
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.
Consolidated statement of comprehensive income
Year ended 31 March
2016 2015
Note GBP'000 GBP'000
----- --------- ---------
Revenue 3 21,134 21,057
Cost of sales (221) (148)
----- --------- ---------
Gross profit 20,913 20,909
Administrative expenses (14,123) (13,373)
----- --------- ---------
Operating profit 4 6,790 7,536
Finance income 143 146
----- --------- ---------
Profit before tax 6,933 7,682
Taxation 6 (1,523) (1,708)
----- --------- ---------
Profit after tax and total
comprehensive income for
the year 5,410 5,974
Profit and total comprehensive
income for the year attributable
to:
Non--controlling interests (131) 192
Owners of the parent 5,541 5,782
----- --------- ---------
Earnings per share for
profit attributable to
the equity holders of the
Group during the year
Basic earnings per share 7 2.55p 2.66p
Diluted earnings per share 7 2.54p 2.65p
----- --------- ---------
Consolidated statement of financial position
As at 31 March
2016 2015
Note GBP'000 GBP'000
----- -------- --------
Non--current assets
Property, plant and equipment 10 81 129
Intangible assets 11 299 504
Investments 12 - 2,567
Deferred tax assets 13 43 73
----- -------- --------
423 3,273
Current assets
Trade and other receivables 14 5,695 6,324
Derivative financial assets 15 106 619
Money market instruments with maturity > 3 months 16 13,020 18,100
Cash and cash equivalents 16 21,720 12,010
----- -------- --------
Total current assets 40,541 37,053
----- -------- --------
Total assets 40,964 40,326
----- -------- --------
Current liabilities
Trade and other payables 17 (2,372) (2,949)
Corporation tax liabilities 17 (776) (893)
Derivative financial liabilities 15 (108) (680)
Total current liabilities (3,256) (4,522)
Total net assets 37,708 35,804
----- -------- --------
Equity
Issued share capital 18 55 55
Share premium account 1,899 1,847
Capital redemption reserve 20 20
Retained earnings 31,715 30,006
----- -------- --------
Equity attributable to owners of the parent 33,689 31,928
Non-controlling interest 20 4,019 3,876
----- -------- --------
Total equity 37,708 35,804
----- -------- --------
Consolidated statement of changes in equity
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
----------- ----------- ----------- -------------
Year ended 31 March 2015
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
2014 55 1,838 20 27,327 29,240 3,667 32,907
Profit and total
comprehensive
income for the
year - - - 5,782 5,782 192 5,974
Dividends paid - - - (3,266) (3,266) - (3,266)
Own shares
acquired by EBT - - - (318) (318) - (318)
Release of shares
held by EBT - 9 - 314 323 - 323
Issue of units in
funds to
non--controlling
interests - - - - - 17 17
Share-based
payment reserve
movement - - - 167 167 - 167
----------- ----------- ----------- ----------- ------------- ----------------- ------------
Transactions with
shareholders - 9 - (3,103) (3,094) 17 (3,077)
----------- ----------- ----------- ----------- ------------- ----------------- ------------
As at 31 March
2015 55 1,847 20 30,006 31,928 3,876 35,804
----------- ----------- ----------- ----------- ------------- ----------------- ------------
Consolidated statement of cash flows
Year ended 31 March
2016 2015
Note GBP'000 GBP'000
----- -------- --------
Net cash inflow from operating
activities 24 5,509 6,335
Cash flow from investing
activities
Purchase of intangible (39) -
software
Purchase of property, plant
and equipment (29) (128)
Sale of securities 1,462 186
Sale / (purchase) of money
market instruments with
maturity > 3 months 5,079 (2,612)
Increase in cash as a result 1,968 -
of consolidating FTSE FRB10
Index Fund
Interest received 165 141
----- -------- --------
Net cash inflow / (outflow)
from investing activities 8,606 (2,413)
Cash flow from financing
activities
Cash flow from (redemption)
/ issue of units in funds (143) 17
Exercise of share options - 15
Purchase of own shares (794) (318)
Dividends paid to equity
shareholders 8 (3,750) (3,266)
----- -------- --------
Cash outflow from financing
activities (4,687) (3,552)
----- -------- --------
Net increase in cash and
cash equivalents in the
year 9,428 370
Effect of exchange rate
changes 282 137
Cash and cash equivalents
at the beginning of the
year 12,010 11,503
Cash and cash equivalents
at the end of the year 21,720 12,010
Closing cash and cash equivalents
consists of:
Cash 5,439 2,730
Cash equivalents 16,281 9,280
----- -------- --------
Cash and cash equivalents 16 21,720 12,010
----- -------- --------
Company statement of financial position
As at 31 March
2016 2015
Note GBP'000 GBP'000
----- -------- --------
Non--current assets
Investments 12 3,666 3,539
----- -------- --------
3,666 3,539
Current assets
Cash and cash equivalents 16 2 17
----- -------- --------
Total current assets 2 17
----- -------- --------
Total assets 3,668 3,556
----- -------- --------
Current liabilities
Trade and other payables 17 (11) (481)
----- -------- --------
Total current liabilities (11) (481)
----- -------- --------
Total net assets 3,657 3,075
----- -------- --------
Equity
Issued share capital 18 55 55
Share premium account 1,809 1,809
Capital redemption reserve 20 20
Retained earnings 1,773 1,191
----- -------- --------
Total equity 3,657 3,075
----- -------- --------
Company statement of changes in equity
Year ended 31 March 2016
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
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
---------- --------- ------------ ---------- ----------------
Year ended 31 March 2015
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
2014 55 1,809 20 1,222 3,106
Profit and
total comprehensive
income for
the year - - - 3,068 3,068
Dividends
paid - - - (3,266) (3,266)
Share option
reserve movement - - - 167 167
---------- --------- ------------ ---------- ---------------
Transactions
with shareholders - - - (3,099) (3,099)
As at 31
March 2015 55 1,809 20 1,191 3,075
---------- --------- ------------ ---------- ---------------
Company statement of cash flows
Year ended 31 March
2016 2015
Note GBP'000 GBP'000
----- -------- --------
Net cash (outflow)/inflow from operating activities 24 (471) 177
Cash flow from investing activities
Dividends received 4,205 3,070
Interest received 1 2
----- -------- --------
Net cash inflow from investing activities 4,206 3,072
Cash flow from financing activities
Dividends paid to equity shareholders 8 (3,750) (3,266)
----- -------- --------
Cash outflow from financing activities (3,750) (3,266)
----- -------- --------
Net decrease in cash and cash equivalents in the year (15) (17)
Cash and cash equivalents at the beginning of the year 17 34
----- -------- --------
Cash and cash equivalents at the end of the year 2 17
----- -------- --------
Closing cash and cash equivalents consists of:
Cash 2 17
Cash equivalents - -
----- -------- --------
Cash and cash equivalents 2 17
----- -------- --------
Notes to the financial statements
For the year ended 31 March 2016
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 2016. 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 2015, with the remaining becoming effective in
future periods. The new standards and amendments to existing
standards effective for the year to 31 March 2016 have not had a
material impact on the financial statements of Record plc.
Standard Description Effective
date
Annual Improvements 1 February
to 2012 Cycle (December 2015
2013)
Annual Improvements 1 January
2013 Cycle (December 2015
2013)
IFRIC Interpretation Levies 17 June
21 (issued on 20 2014
May 2013)
------------ -----------
Standards and interpretations not endorsed
Standard Description Effective
date (periods
commencing
on or after
1 January
2015)
Amendment to IAS Clarification 1 January
16 and IAS 38 (May of Acceptable 2016
2014) Methods of Depreciation
and Amortisation
Annual improvements Improvements 1 January
2014 (September 2014) to: IFRS 5, IFRS 2016
7, IAS 19 and
IAS 34
Amendments to IAS Part of the disclosure 1 January
1 (December 2014) initiative aimed 2016
at improving
financial statement
presentation
and disclosures
IFRS 15 (May 2014) Revenue from 1 January
contracts with 2018
customers
IFRS 9 (July 2014) Financial Instruments 1 January
2018
IFRS 16 (January Leases 1 January
2016) 2019
------------------------- ---------------
IFRS 16 "Leases" may have a material impact on the financial
statements, as the Group would have to recognise at the
commencement of any future lease for premises both a "right-of-use"
asset which would be depreciated over the lease period, and a lease
liability equal to the present value of future lease payments.
Record's existing lease is accounted for as an operating lease and
therefore is not represented on the statement of financial position
(balance sheet).
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 2016.
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. The Group has "de facto"
control over this special purpose entity. This 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 2016 and the financial
position of the seeded funds as at 31 March 2016.
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 total comprehensive income for the
year includes a profit of GBP4,091,492 attributable to the Company
(2015: GBP3,069,187).
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 the exchange rates prevailing at the dates of
the transactions (spot exchange rate). 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.
2016 2015
Revenue by product type GBP'000 GBP'000
-------- --------
Management fees
Dynamic Hedging 8,311 9,376
Passive Hedging 9,438 8,105
Currency for Return 3,192 2,774
-------- --------
Total management fee income 20,941 20,255
-------- --------
Performance fee income - Dynamic Hedging 315 480
Other income (122) 322
Total revenue 21,134 21,057
Other income includes losses attributable to the non-controlling
interest's holding in the funds of GBP112,274 (2015: gain of
GBP192,360).
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.
2016 2015
Revenue by geographical region GBP'000 GBP'000
-------- --------
Management and performance fee
income
UK 4,501 5,501
US 3,746 3,660
Switzerland 11,939 10,352
Other 1,070 1,222
-------- --------
Total management and performance
fee income 21,256 20,735
-------- --------
Other income (122) 322
-------- --------
Total revenue 21,134 21,057
-------- --------
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 2016, five clients individually
accounted for more than 10% of the Group's revenue. The five
largest clients generated revenues of GBP2.8m, GBP2.8m, GBP2.4m,
GBP2.4m and GBP2.3m in the year (2015: five largest clients
generated revenues of GBP3.2m, GBP2.4m, GBP2.3m, GBP2.2m and
GBP2.1m).
4. Operating profit
Operating profit for the year is stated after
charging/(crediting):
2016 2015
GBP'000 GBP'000
-------- --------
Staff costs 9,693 8,919
Depreciation of property, plant
and equipment 77 85
Amortisation of intangibles 244 230
Auditor fees
Fees payable to the Group's auditor
for the audit of the Company's
annual accounts 45 44
The audit of the Group's subsidiaries,
pursuant to legislation 39 42
Other services pursuant to legislation 68 65
Other services relating to taxation 10 10
Operating lease rentals: land
and buildings 224 224
Losses on forward FX contracts
held to hedge cash flow 315 92
Other exchange gains (298) (701)
-------- --------
5. Staff costs
The average number of employees, including Directors, employed
by the Group during the year was:
2016 2015
Corporate 9 9
Client relationships 12 10
Investment research 10 11
Operations 23 24
Risk management 4 4
Support 11 10
Annual average 69 68
The aggregate costs of the above employees, including Directors,
were as follows:
2016 2015
GBP'000 GBP'000
-------- --------
Wages and salaries 6,922 6,489
Social security costs 1,005 871
Pension costs 479 416
Other employment benefit costs 1,287 1,143
-------- --------
Aggregate staff costs 9,693 8,919
-------- --------
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:
2016 2015
GBP'000 GBP'000
-------- --------
Profit before taxation 6,933 7,682
-------- --------
Taxation at the standard rate of tax in the UK of 20% (2015: 21%) 1,387 1,613
Tax effects of:
Other disallowable expenses and non--taxable income 15 32
Capital allowances for the period lower than depreciation 26 8
Higher tax rates on subsidiary undertakings 3 -
Adjustments recognised in current year in relation to the current tax of prior years 4 5
Other temporary differences 88 50
-------- --------
Total tax expense 1,523 1,708
-------- --------
The tax expense comprises:
Current tax expense 1,493 1,623
Deferred tax expense 30 85
-------- --------
Total tax expense 1,523 1,708
-------- --------
The standard rate of UK corporation tax for the year is 20%
(2015: 21%). 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 2016 was GBP1,522,827
(2015: GBP1,707,824) which was 22.0% of profit before tax (2015:
22.2%).
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.
2016 2015
Weighted average number of shares
used in calculation of basic
earnings per share 217,176,877 217,501,040
Effect of potential dilutive
ordinary shares - share options 711,980 892,093
------------ ------------
Weighted average number of shares
used in calculation of diluted
earnings per share 217,888,857 218,393,133
------------ ------------
pence pence
Basic earnings per share 2.55 2.66
Diluted earnings per share 2.54 2.65
------ ------
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
9,910,750 shares. During the year 853,750 options were exercised,
and a further 90,000 share options lapsed or were forfeited. The
Group granted 4,402,249 share options with a potentially dilutive
effect during the year. Of the 13,369,249 share options in place at
the end of the period, 9,007,253 share options 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
2016 totalled GBP3,749,849 (1.725p per share) which comprised a
final dividend in respect of the year ended 31 March 2015 of
GBP1,962,261 (0.90p per share) and an interim dividend for the year
ended 31 March 2016 of GBP1,787,588 (0.825p per share).
The dividends paid by the Group during the year ended 31 March
2015 totalled GBP3,266,329 (1.50p per share) which comprised a
final dividend in respect of the year ended 31 March 2014 of
GBP1,634,833 (0.75p per share) and an interim dividend for the year
ended 31 March 2015 of GBP1,631,496 (0.75p per share).
The final dividend proposed in respect of the year ended 31
March 2016 is 0.825p per share.
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 GBP479,206 (2015:
GBP416,276).
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--5 years
-- Fixtures and fittings - 4 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
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
------------- ---------- ------------- --------
Leasehold Computer Fixtures
improvements equipment and fittings Total
2015 GBP'000 GBP'000 GBP'000 GBP'000
------------- ---------- ------------- --------
Cost
At 1 April
2014 534 721 272 1,527
Additions - 96 32 128
Disposals - (193) - (193)
------------- ---------- ------------- --------
At 31 March
2015 534 624 304 1,462
------------- ---------- ------------- --------
Depreciation
At 1 April
2014 534 637 270 1,441
Charge
for the
year - 78 7 85
Disposals - (193) - (193)
------------- ---------- ------------- --------
At 31 March
2015 534 522 277 1,333
------------- ---------- ------------- --------
Net book
amounts
At 31 March
2015 - 102 27 129
------------- ---------- ------------- --------
At 1 April
2014 - 84 2 86
------------- ---------- ------------- --------
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 - 2-5 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
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
--------- --------
Software Total
2015 GBP'000 GBP'000
--------- --------
Cost
At 1 April 2014 1,150 1,150
Additions - -
Disposals - -
--------- --------
At 31 March 2015 1,150 1,150
--------- --------
Amortisation
At 1 April 2014 416 416
Charge for the
year 230 230
Disposals - -
--------- --------
At 31 March 2015 646 646
--------- --------
Net book amounts
At 31 March 2015 504 504
--------- --------
At 1 April 2014 734 734
--------- --------
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 GBP138,112 (2015: GBP138,112). All amortisation
charges are included within administrative expenses.
12. Investments
Group
Investments in funds which are not consolidated on a
line-by-line basis are designated as fair value through profit or
loss. The Group will only consolidate funds on a line-by-line basis
when the Group is able to control the fund by virtue of having a
majority holding in the fund either directly, or in aggregate with
the holdings of the Group's related parties.
The Group may hold certain securities through its seeded fund
vehicles. The Group has held US government treasury inflation
protected securities ("TIPS"), which are designated as fair value
through profit or loss, and the fair value is determined by
reference to quoted market price. These securities are classified
as a Level 1 investment.
2016 2015
Investments GBP'000 GBP'000
--------- --------
Record Currency - FTSE FRB10
Index Fund - 1,105
US government TIPS - 1,462
--------- --------
- 2,567
---------------------------------------- --------
The Group gained control of the Record Currency FTSE FRB10 Index
Fund on 1 September 2015 as a result of a disinvestment from the
fund by an external investor. The fund was consolidated on a
line-by-line basis from 1 September 2015 until the end of the
period, but prior to this, the Group's investment in the fund was
designated as fair value through profit or loss. At the acquisition
date, the fair value of the investment held in the fund equalled
the Group's share of the fair value of the assets acquired. There
were no other identifiable assets or liabilities recognised as a
result of this acquisition and there was no gain or loss arising on
the transaction.
The funds disposed of their TIPS holding during the period,
there was no gain or loss arising on the transaction.
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.
2016 2015
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. 79 76
Record Group Services Limited 578 341
-------- --------
Total capitalised investment in respect of share--based payments 657 417
-------- --------
Total investment in subsidiaries 687 447
-------- --------
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,
and all other subsidiaries are registered in England and Wales.
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.
In December 2010, the Company invested in the Record Currency -
FTSE FRB10 Index Fund and the Record Currency - Emerging Market
Currency Fund. Initially, these were both accounted for as a
disposal group held for sale. In both cases, the Group still
retained control over each of the funds twelve months after making
the original investment. Consequently both funds ceased to be
classified as held for sale and were consolidated in full, on a
line-by-line basis.
The Group has retained control of the Record Currency - Emerging
Market Currency Fund throughout the period, and it remains
consolidated in full, on a line-by-line basis in the Group's
financial statements. The Group ceased to control the Record
Currency - FTSE FRB10 Index Fund from 1 March 2015 until 31 August
2015 during which period the Group did not consolidate the fund on
a line-by-line basis. It regained 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, which is consolidated in full
on a line-by-line basis.
All three fund investments are presented in investments in the
Company statement of financial position.
2016 2015
Investment in funds GBP'000 GBP'000
-------- --------
Record Currency - FTSE FRB10
Index Fund 1,060 1,105
Record Currency - Emerging
Market Currency Fund 1,000 1,028
Record Currency - Strategy
Development Fund (formerly
Global Alpha Fund) 919 959
-------- --------
Total 2,979 3,092
-------- --------
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.
2016 2015
GBP'000 GBP'000
-------- --------
Profit and loss account movement
arising during the year (30) (85)
Asset brought forward 73 158
-------- --------
Asset carried forward 43 73
-------- --------
The provision for deferred taxation consists of the tax effect
of temporary differences in respect of:
2016 2015
GBP'000 GBP'000
-------- --------
Deferred tax allowance on unvested
share options 10 66
Shortfall of taxation allowances
over depreciation on fixed
assets 33 7
-------- --------
43 73
-------- --------
At the year end the Group had deferred tax assets of GBP42,850
(2015: GBP72,518). At the year end there were share options not
exercised with an intrinsic value for tax purposes of GBP47,742
(2015: GBP327,987). 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:
2016 2015
GBP'000 GBP'000
-------- --------
Trade receivables 4,027 4,648
Accrued income 1,055 1,078
Other receivables 25 74
Prepayments 588 524
-------- --------
Total 5,695 6,324
-------- --------
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 2016. The carrying amount of
receivables whose terms have been renegotiated, that would
otherwise be past due or impaired is GBPnil (2015: 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.
2016 2015
Derivative financial assets GBP'000 GBP'000
-------- --------
Forward foreign exchange contracts
held to hedge cash flow - 8
Forward foreign exchange contracts
held for trading 106 35
Foreign exchange options held
for trading - 576
-------- --------
Total 106 619
-------- --------
2016 2015
Derivative financial liabilities GBP'000 GBP'000
-------- --------
Forward foreign exchange contracts (108) -
held to hedge cash flow
Foreign exchange options held
for trading - (680)
-------- --------
Total (108) (680)
-------- --------
Derivative financial instruments held to hedge cash flow
At 31 March 2016 there were outstanding contracts with a
principal value of GBP5,996,550 (31 March 2015: GBP4,260,992) 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 2016. 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:
2016 2015
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 (315) (92)
-------- --------
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 until the fund was
deconsolidated from the Group on 1 March 2015, and then again from
1 September 2015 when the fund was re-consolidated into the Group
financial statements.
At 31 March 2016 there were outstanding contracts with a
principal value of GBP14,621,185 (31 March 2015:
GBP36,120,350).
The net gain or loss on derivative financial instruments held
for trading for the year was as follows:
2016 2015
Derivative financial instruments GBP'000 GBP'000
held for trading
-------- --------
Net loss on forward foreign exchange
contracts and foreign exchange
options at fair value through
profit or loss (178) (232)
-------- --------
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
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Bank deposits with maturities
> 3 months 11,518 17,500 - -
Treasury bills with
maturity > 3 months 1,502 600 - -
-------- -------- -------- --------
Money market instruments
with maturities > 3
months 13,020 18,100 - -
-------- -------- -------- --------
Cash 5,439 2,730 2 17
Bank deposits with maturities
<= 3 months 16,281 9,280 - -
-------- -------- -------- --------
Cash and cash equivalents 21,720 12,010 2 17
-------- -------- -------- --------
Total assets managed
as cash 34,740 30,110 2 17
-------- -------- -------- --------
Cash and cash equivalents Group Company
------------------ ------------------
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Cash and cash equivalents
- sterling 16,641 10,525 2 17
Cash and cash equivalents
- USD 1,941 818 - -
Cash and cash equivalents
- CHF 3,067 637 - -
Cash and cash equivalents
- other currencies 71 30 - -
-------- -------- -------- --------
Total cash and cash
equivalents 21,720 12,010 2 17
-------- -------- -------- --------
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 2016, the cash and cash equivalents held by the seed funds
over which the Group had control totalled GBP5,380,007 (31 March
2015: GBP3,920,614) and the money market instruments with
maturities > 3 months held by these funds were GBP1,502,326 (31
March 2015: GBP599,758).
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
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Trade payables 171 181 - -
Amounts owed to Group
undertaking - - 11 480
Other payables 2 1 - 1
Other tax and social
security 248 312 - -
Accruals 1,951 2,455 - -
-------- -------- -------- --------
Total 2,372 2,949 11 481
-------- -------- -------- --------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
Current tax liabilities
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Corporation tax 776 893 - -
-------- -------- -------- --------
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.
2016 2015
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 2014 3,873,983
Adjustment for net sales by EBT (25,921)
----------
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
----------
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 2016 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 a cash 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 GBP631,252 (2015: GBP683,978). 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 GBP262,426 (2015: GBP273,155). Shares
awarded under the Profit Share Scheme do not include any vesting
restrictions but rather restrictions over subsequent sale and
transfer. All shares 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 (the "Share Scheme") was adopted by
the Company on 1 August 2008 and was initially created to allow
deferred share awards to be granted to new senior employees.
During 2011, the Share Scheme was amended to include the ability
to grant HMRC approved options ("Approved Options") under Part 2 of
the Share Scheme alongside Part 1 which allows for the grant of
unapproved options ("Unapproved Options"). In 2013, the Share
Scheme was amended to allow Board Directors to participate in the
grant of Unapproved Options and in 2016 was further amended to
allow Board Directors to be granted Approved Options. The exercise
price per share of Approved Options must be no lower than the
market value of a share on the dealing day immediately preceding
the date of grant. 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 may be granted with any exercise price
(including GBPnil), but have recently been granted with a market
value exercise price in the same way as for the Approved
Options.
Options over an aggregate of 4,402,249 shares were granted under
the Share Scheme during the year (2015: 4,327,000), of which
3,197,500 were made subject to Unapproved Options and 1,204,749 to
Approved Options (2015: 4,007,000 made subject to Unapproved
Options and 320,000 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 1,800,000 Unapproved Options issued on 1 December 2015 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 1,325,000 Unapproved Options issued on 27 January 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 877,249 Approved Options issued on 27 January 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 327,500 Approved Options issued on 27 January 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 performance conditions have been satisfied.
The 72,500 Unapproved Options issued on 27 January 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 performance conditions have been satisfied.
Options without market performance conditions are valued using
the Black--Scholes method, options with market performance
conditions are valued using a risk--neutral Monte Carlo valuation.
Expected volatilities used are based on historic volatilities.
The Group share--based payment expense in respect of the Share
Scheme was GBP240,067 in the year ended 31 March 2016 (2015:
GBP166,587).
Outstanding share options
At 31 March 2016, the total number of ordinary shares of 0.025p
outstanding under Record plc share compensation schemes was
13,369,249 (2015: 9,910,750). 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 Latest
Date At 31 Earliest vesting
of 1 April Lapsed March vesting date(1) Exercise
grant 2015 Granted Exercised / forfeited 2016 date * price
08/08/11 150,000 - (75,000) - 75,000 08/08/13 08/08/15 GBP0.3225
02/12/11 600,000 - (400,000) - 200,000 02/12/15 02/12/15 GBP0.1440
18/12/12 1,490,000 - - (50,000) 1,440,000 18/12/16 18/12/16 GBP0.3098
18/12/12 153,750 - (51,250) - 102,500 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 1,310,000 - (327,500) - 982,500 27/09/14 27/09/17 GBP0.3085
18/11/13 1,400,000 - - - 1,400,000 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 - - - 320,000 24/03/19 24/03/19 GBP0.3450
24/03/15 1,847,000 - - - 1,847,000 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 - - 1,325,000 27/01/17 27/01/20 GBP0.2450
27/01/16 - 877,249 - (40,000) 837,249 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
Total
options 9,910,750 4,402,249 (853,750) (90,000) 13,369,249
Weighted
average
exercise
price
of
options GBP0.32 GBP0.26 GBP0.23 GBP0.28 GBP0.30
---------- ---------- ---------- ------------- ----------- --------- --------- ----------
[1] Under the terms of the deeds of grants, options are
exercisable for a year following the vesting date
During the year 853,750 options were exercised. The weighted
average share price at date of exercise was GBP0.32. At 31 March
2016 a total of 1,115,500 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
2016 2015
-------------- -------------
Record plc Group Profit Share Scheme (interest in restricted share awards)
James Wood--Collins 783,651 753,377
Leslie Hill 542,301 294,528
Bob Noyen 343,548 303,378
Steve Cullen 270,824 146,220
-------------- -------------
Record plc Share Scheme (interest in unvested share options)
James Wood--Collins 2,580,000 2,030,000
Leslie Hill 1,180,000 630,000
Bob Noyen 1,180,000 630,000
Steve Cullen 895,000 345,000
-------------- -------------
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 the 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 risk--neutral Monte Carlo
valuation. 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 claw back 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 claw back 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 49,223 free shares (2015: 40,192 free shares) to
employees. The expense charged in respect of the SIP was GBP14,690
in the year ended 31 March 2016 (2015: GBP12,579).
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 2016.
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 - Strategic
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 - Strategic Development Fund was known previously 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 2016, 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 2016 2015
accounts of the Record Group
Record Currency - Emerging Market Currency Fund
Board Directors 61% 42%
Other investors 17% 30%
----- -----
Total non--controlling interest 78% 72%
----- -----
Record Currency - Strategy Development Fund (formerly Global Alpha Fund)
Board Directors -% 54%
Other investors -% 1%
----- -----
Total non--controlling interest -% 55%
----- -----
Record Currency - FRB10 Index Fund
Board Directors -% N/a
Other investors 29% N/a
----- -----
Total non--controlling interest 29% N/a
----- -----
Summarised financial information for Record Currency - Emerging
Market Currency Fund, before intra--group eliminations, is set out
below:
2016 2015
GBP'000 GBP'000
-------- --------
Total assets 4,668 3,861
Total liabilities (85) (146)
Net assets 4,583 3,715
Equity attributable to owners
of the parent 1,000 1,028
Non--controlling interests 3,583 2,687
-------- --------
Equity 4,583 3,715
-------- --------
Profit and total comprehensive
income for the year attributable
to owners of the parent (27) 10
Profit and total comprehensive
income for the year attributable
to the non-controlling interest (76) 194
-------- --------
Profit and total comprehensive
income for the year (103) 204
-------- --------
Cash inflow 360 313
-------- --------
Summarised financial information for Record Currency - Strategy
Development Fund (formerly Global Alpha Fund), before intra-group
eliminations, is set out below:
2016 2015
GBP'000 GBP'000
-------- --------
Total assets 921 2,958
Total liabilities (2) (810)
-------- --------
Net assets 919 2,148
-------- --------
Equity attributable to owners
of the parent 919 959
Non--controlling interests - 1,189
-------- --------
Equity 919 2,148
-------- --------
Profit and total comprehensive (66) -
income for the year attributable
to owners of the parent
Profit and total comprehensive
income for the year attributable
to non-controlling interest (88) (2)
-------- --------
Profit and total comprehensive
income for the year (154) (2)
-------- --------
Cash inflow 113 273
-------- --------
Summarised financial information for Record Currency -- FTSE
FRB10 Index Fund, before intragroup eliminations, is set out
below:
2016 2015
GBP'000 GBP'000
-------- --------
Total assets 1,520 n/a
Total liabilities (24) n/a
-------- --------
Net assets 1,496 n/a
-------- --------
Equity attributable to owners 1,060 n/a
of the parent
Non--controlling interests 436 n/a
-------- --------
Equity 1,496 n/a
-------- --------
Profit and total comprehensive (45) n/a
income for the year attributable
to owners of the parent
Profit and total comprehensive 18 n/a
income attributable to non-controlling
interest since 1 September 2015
-------- --------
Profit and total comprehensive (109) n/a
income for the year
-------- --------
Cash inflow 987 n/a
-------- --------
2016 2015
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 3,583 2,687
Record Currency - FTSE FRB10 436 N/a
Index Fund
Record Currency - Strategy Development
Fund (formerly Global Alpha
Fund) - 1,189
-------- --------
4,019 3,876
-------- --------
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:
2016 2015
Financial assets at 31 March GBP'000 GBP'000
-------- --------
Investment in Record Currency
- FTSE FRB10 Index Fund - 1,105
Securities (TIPS) - 1,462
Trade receivables 4,027 4,648
Accrued income 1,055 1,078
Other receivables 25 74
Other financial assets at fair
value through profit or loss 106 619
Money market instruments with
maturities > 3 months 13,020 18,100
Cash and cash equivalents 21,720 12,010
-------- --------
39,953 39,096
-------- --------
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
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%
--------- ---------- ------------ ----------
Neither
impaired More than
Carrying nor past 0--3 months 3 months
amount due past due past due
At 31 March
2015 GBP'000 GBP'000 GBP'000 GBP'000
--------- ---------- ------------ ----------
Trade receivables 4,648 4,648 - -
Accrued
income 1,078 1,078 - -
--------- ---------- ------------ ----------
5,726 5,726 - -
--------- ---------- ------------ ----------
100% 0% 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 51 debtors' balances (2015:
44). The largest individual debtor corresponds to 15% of the total
balance (2015: 17%). Debtor days, based on the generally accepted
calculation of debtor days, is 70 days (2015: 82 days). This
reflects the quarterly billing cycle used by the Group for the vast
majority of its fees. As at 31 March 2016 2% of debt was overdue
(2015: 0%). 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 14 days (2015: 15 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 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 -
--------- --------- ------------ ------------
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 2015 GBP'000 GBP'000 GBP'000 GBP'000
--------- ----------- ------------ ------------
Trade payables 181 117 14 50
Accruals 2,455 129 1,254 1,072
Derivative financial
liabilities 680 70 344 266
--------- ----------- ------------ ------------
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
used 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 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)
-------- --------- ------------ --------
Fixed Floating No interest Total
rate rate rate
At 31 March 2015 GBP'000 GBP'000 GBP'000 GBP'000
-------- --------- ------------ --------
Financial assets
Investment in Record
Currency - FTSE FRB10
Index fund - - 1,105 1,105
Securities (TIPS) - 1,462 - 1,462
Trade receivables - - 4,648 4,648
Accrued income - - 1,078 1,078
Other receivables - - 74 74
Derivative financial
assets at fair value
through profit or
loss - - 619 619
Money market instruments
with maturities >
3 months 18,100 - - 18,100
Cash and cash equivalents 9,280 2,730 - 12,010
-------- --------- ------------ --------
Total financial assets 27,380 4,192 7,524 39,096
-------- --------- ------------ --------
Financial liabilities
Trade payables - - (181) (181)
Accruals - - (2,455) (2,455)
Derivative financial
liabilities at fair
value through profit
or loss - - (680) (680)
-------- --------- ------------ --------
Total financial liabilities - - (3,316) (3,316)
-------- --------- ------------ --------
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.
In the year ended 31 March 2016, the Group invoiced the
following amounts in currencies other than sterling:
Local Value
currency in reporting
value currency
'000 GBP'000
---------- --------------
Swiss franc (CHF) 13,546 9,286
US dollar (USD) 9,389 6,234
Euro (EUR) 1,084 808
Canadian dollar (CAD) 660 334
Singapore dollar (SGD) 39 19
---------- --------------
16,681
---------- --------------
The value of revenues for the year ended 31 March 2016 that were
denominated in currencies other than sterling was GBP16.7 million
(31 March 2015: GBP15.2 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 GBP919,479) 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 and
assets 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
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
10% weakening in
the GBP/$ exchange
rate 653 588 653 588
10% strengthening
in the GBP/$ exchange
rate (653) (588) (653) (588)
10% weakening in
the GBP/CHF exchange
rate 583 505 583 505
10% strengthening
in the GBP/CHF exchange
rate (583) (505) (583) (505)
-------- -------- -------- --------
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 both on a historical basis and market
expectations for future movement. When applied to the average
sterling/USD exchange rate of $1.51/GBP this would result in a
weakened exchange rate of $1.37/GBP and a strengthened exchange
rate of $1.67/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 both on a historical basis and market
expectations for future movement. When applied to the average
sterling/CHF exchange rate of CHF1.46/GBP this would result in a
weakened exchange rate of CHF1.33/GBP and a strengthened exchange
rate of CHF1.62/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 2016
were GBP4,583,029 (2015: GBP3,714,107).
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
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
10% depreciation in
the Emerging Market
portfolio (412) (324) (412) (324)
---------------------- -------- -------- -------- --------
10% appreciation in
the Emerging Market
portfolio 412 324 412 324
---------------------- -------- -------- -------- --------
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 both on a historical
basis and expectations for future movement in emerging markets. The
proportion of the impact of the change attributable to the owners
of the parent and to the non-controlling interest is dependent on
their respective holdings in the fund (see note 20 for further
detail on relative holdings at year end).
Other market risk - sensitivity analysis
FRB10 Index Fund
The Group seeded a product in December 2010 called the Record
Currency - FRB10 Index Fund, which manages a portfolio of forward
exchange contracts in order to achieve a return following the FTSE
FRB10 index.
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 2016 were GBP1,496,189 (2015:
GBP45,446,584).
The FTSE FRB10 index represents the return from the Forward Rate
Bias strategy which can be derived from ten of the world's largest
currencies (by turnover).The Group has provided the following data
in respect of sensitivity to the FTSE FRB10 index:
Impact on
profit after Impact on
tax for the total equity
year ended as at 31
31 March March
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
10% depreciation
in the FRB10 index (146) (107) (146) (107)
-------- -------- -------- --------
10% appreciation
in the FRB10 index 146 107 146 107
-------- -------- -------- --------
The impact of a change to the FTSE FRB10 index of 10% has been
selected as this is considered reasonable given the current level
of exchange rates and the volatility observed both on a historical
basis and expectations for future movement. The proportion of the
impact of the change attributable to the owners of the parent and
to the non-controlling interest is dependent on their respective
holdings in the fund (see note 20 for further detail on relative
holdings at year end).
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:
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) -
2015 Level Level Level
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Financial assets at fair
value through profit
or loss
Investment in Record
Currency - FTSE FRB10
Index Fund 1,105 1,105 - -
TIPS 1,462 1,462 - -
Forward foreign exchange
contracts used for seed
funds 35 - 35 -
Options used for seed
funds 576 - 576 -
Forward foreign exchange
contracts used for hedging 8 - 8 -
Financial liabilities
at fair value through
profit or loss
Options used for seed
funds (680) - (680) -
Total 2,506 2,567 (61) -
There have been no transfers between levels in the reporting
period (2015: 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 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 -
Current 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)
----- ------------- -------------- --------- ------------
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 2015 Note GBP'000 GBP'000 GBP'000 GBP'000
----- ------------- -------------- --------- ------------
Investment in Record
Currency - FTSE
FRB10 Index Fund 12 - - 1,105 -
TIPS 12 - - 1,462 -
Trade and other
receivables (excludes
prepayments) 14 5,800 - - -
Money market instruments
with maturities
> 3 months 16 18,100 - - -
Cash and cash equivalents 16 12,010 - - -
Derivative financial
assets at fair
value through profit
or loss 15 - - 619 -
Current trade payables 17 - (181) - -
Accruals 17 - (2,455) - -
Derivative financial
liabilities at
fair value through
profit or loss 15 - - - (680)
----- ------------- -------------- --------- ------------
Total 35,910 (2,636) 3,186 (680)
----- ------------- -------------- --------- ------------
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 Morgan House, Madeira Walk, Windsor, at an annual
commitment of GBP229,710 per annum and which expires on 19 June
2016.
On 16 March 2016, the Group signed a three year lease on
premises in New York City, at an average annual commitment of
GBP87,500 per annum. Prior to this, the Group held a lease on
offices based in Atlanta, Georgia at an average annual commitment
of GBP21,300 which ceases on 31 July 2016.
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 2016 the Group had commitments under
non--cancellable operating leases relating to land and buildings as
set out below:
2016 2015
GBP'000 GBP'000
-------- --------
Not later than one year 143 230
Later than one year and not
later than five years 177 57
-------- --------
320 287
-------- --------
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. Once works are complete and the new offices are
fully occupied, the annual commitment will increase to
approximately GBP480,000 per annum subject to final confirmation of
net internal area.
24. Cash flow from operating activities
Group
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.
2016 2015
GBP'000 GBP'000
-------- --------
Operating profit 6,790 7,536
Adjustments for non-cash
movements:
Depreciation of property,
plant and equipment 77 85
Amortisation of intangible
assets 244 230
Release of shares previously
held by EBT 374 308
Share-based payments 388 167
Other non-cash movements (282) (137)
-------- --------
7,591 8,189
Changes in working capital
Decrease / (increase) in
receivables 610 (672)
(Decrease) / increase in
payables (600) 243
Decrease / (increase) in
other financial assets 1,182 (421)
(Decrease) / increase in
other financial liabilities (1,664) 558
-------- --------
Cash inflow from operating
activities 7,119 7,897
Corporation taxes paid (1,610) (1,562)
-------- --------
Net cash inflow from operating
activities 5,509 6,335
-------- --------
Company
2016 2015
GBP'000 GBP'000
-------- --------
Operating loss (114) (3)
Adjustment for:
Loss on investments 113 5
Changes in working capital
Decrease in receivables - 146
(Decrease) / increase in payables (470) 29
-------- --------
Cash (outflow) / inflow from operating activities (471) 177
Corporation taxes paid - -
-------- --------
Net cash (outflow) /inflow from operating activities (471) 177
-------- --------
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.
2016 2015
GBP'000 GBP'000
-------- --------
Amounts due from subsidiaries - -
Amounts due to subsidiaries (11) (480)
Interest received from subsidiaries on intercompany loan balances - 1
-------- --------
Net dividends received from subsidiaries 4,205 3,070
-------- --------
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 (2015:
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
2016 2015
GBP'000 GBP'000
-------- --------
Short--term employee benefits 3,894 3,568
Post--employment benefits 280 229
Share--based payments 989 940
-------- --------
Total 5,163 4,737
-------- --------
The dividends paid to key management personnel in the year ended
31 March 2016 totalled GBP1,963,285 (2015: GBP1,677,173)
Directors' remuneration
2016 2015
GBP'000 GBP'000
-------- --------
Emoluments (excluding pension
contribution) 2,326 2,254
Pension contribution (includes
payments made in lieu of pension
contributions) 150 137
-------- --------
Aggregate emoluments of the Directors 2,476 2,391
-------- --------
During the year, three Directors of the Company (2015: four)
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.
During the year, five key management personnel adjusted their
seed investment in the funds, as set out below
Related Trade Type Value Fund
party date
N. Record 15 Apr Redemption GBP 473,474 Record Currency
2015 - FTSE FRB10
Index Fund
L. Hill 27 Aug Redemption USD 898,530 Record Currency
2015 - Global Alpha
Fund
B. Noyen 08 Oct Redemption USD 687,113 Record Currency
2015 - Global Alpha
Fund
B. Noyen 16 Oct Subscription USD 250,000 Record Currency
2015 - Emerging Market
Currency Fund
Other 08 Oct Redemption USD 38,487 Record Currency
key management 2015 - Global Alpha
personnel Fund
------- ------------- ------------ -------------------
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:
2016 2015
GBPm GBPm
----- -----
Regulatory capital 8.5 8.8
Other operating capital 23.2 20.5
----- -----
Operating capital 31.7 29.3
Seed capital 3.0 3.1
----- -----
Total capital 34.7 32.4
----- -----
Operating capital is equivalent to the aggregate net current
assets of the Company and the main trading subsidiaries of the
Group. Operating capital is intended to cover the regulatory
capital requirement plus capital required for day to day
operational 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 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 2016 the Company had no ultimate controlling
party, nor at 31 March 2015.
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 2015. The
financial information set out above does not constitute the
Company's statutory accounts.
The statutory accounts for the financial year ended 31 March
2014 have been delivered to the Registrar of Companies, and those
for the year ended in 31 March 2015 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.
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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFLFMMFMSELM
(END) Dow Jones Newswires
June 17, 2016 02:00 ET (06:00 GMT)
Record (LSE:REC)
Historical Stock Chart
Von Jun 2024 bis Jul 2024
Record (LSE:REC)
Historical Stock Chart
Von Jul 2023 bis Jul 2024
