TIDMREC
RNS Number : 4382Q
Record PLC
19 June 2020
PRESS RELEASE
Record plc
19 June 2020
FINAL RESULTS ANNOUNCEMENT FOR THE YEARED 31 MARCH 2020
Record plc, the specialist currency manager, today announces its
audited results for the year ended 31 March 2020.
Resilient, in-line performance; positive growth outlook with
final dividend and special dividend declared
Financial headlines:
-- Revenue growth of 2.4% to GBP25.6m (2019: GBP25.0m)
-- Performance fees for the year of GBP1.8m (2019: GBP2.3m)
-- Profit Before Tax (PBT) of GBP7.7m (2019: GBP8.0m)
-- Operating profit margin decreased to 30% (2019: 32%)
-- AUME [1] $58.6bn at 31 March 2020 (up 2.3% for the year),
including net inflows of $4.6bn for the year
-- AUME GBP47.3bn at 31 March 2020 (up 7.5% for the year)
-- Robust financial position with increased net assets of
GBP28.2m at 31 March 2020 (2019: GBP27.4m)
-- Basic EPS of 3.26p per share (2019: 3.27p)
-- Proposed final ordinary dividend of 1.15p per share; total
ordinary dividend for the year of 2.30p per share (2019: 2.30p)
-- Special dividend for the year of 0.41p per share (2019: 0.69p)
Key developments:
-- Change of leadership during the year with further senior
management appointments, including a new Head of Global Sales
-- Strategy focused on accelerated and diversified growth and planning for generational change
-- Proven operational resilience and financial independence
maintained through the current covid-19 pandemic
-- Development of currency-based ESG/Impact offering builds on
Record's commitment to sustainability principles
-- Expansion of Record's office in Switzerland through the
strengthening of the client and research teams based in Zürich
-- Economic, political and market environments provide
opportunities to engage with current and potential clients across a
broad spectrum of products and geographies
Commenting on the results, Neil Record, Chairman of Record plc,
said:
"This financial year has seen an important change in strategic
focus for the Group coupled more latterly with extreme market
volatility and disruption to working practices linked to the
covid-19 pandemic.
"The change in leadership announced in mid-February shows our
intent to build the business with new CEO, Leslie Hill leading our
drive to accelerate growth building on Record's strong market
positioning, long track record and depth of institutional client
base. Further senior management hires, including a new Head of
Global Sales, demonstrate our commitment to delivering diversified
growth well into the medium term.
"Covid-19 has been unprecedented in its impact on the business
community, the global economy, and on society as a whole. Through
such extreme conditions our business has proved its resilience and
adaptability, through the inbuilt operational flexibility and the
disciplined commitment of our hugely talented employees. The Group
remains cash-generative, well capitalised and completely
independent of any of the Government's job retention or loan
schemes.
"Against this backdrop, it is pleasing to report the Board's
recommendation for payment of both a final ordinary dividend and
also of a special dividend in line with the Group's capital and
dividend policy, and underlining the Board's confidence in the
strategic changes and in the growth opportunities anticipated
ahead."
Analyst presentation
There will be a presentation for analysts at 9.30am on Friday 19
June 2020 held via a Zoom call. Please contact the team at Buchanan
via record@buchanan.uk.com for further details. 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 +44 (0) 1753 852222
Neil Record - Chairman
Leslie Hill - Chief Executive Officer
Steve Cullen - Chief Financial Officer
Buchanan +44 (0) 20 7466 5163
Giles Stewart
Victoria Hayns
Henry Wilson
Consolidated statement of comprehensive income
Year ended 31 March
2020 2019
GBP'000 GBP'000
------------------------------------------- -------- --------
Revenue 25,563 24,973
Cost of sales (255) (385)
------------------------------------------- -------- --------
Gross profit 25,308 24,588
Administrative expenses (17,741) (16,704)
Other income or expense 82 (8)
------------------------------------------- -------- --------
Operating profit 7,649 7,876
Finance income 146 135
Finance expense (58) (22)
------------------------------------------- -------- --------
Profit before tax 7,737 7,989
Taxation (1,365) (1,559)
------------------------------------------- -------- --------
Profit after tax 6,372 6,430
------------------------------------------- -------- --------
Total comprehensive income for the year 6,372 6,430
------------------------------------------- -------- --------
Profit and total comprehensive income for
the year attributable to
Owners of the parent 6,420 6,430
Non-controlling interests (48) -
------------------------------------------- -------- --------
Profit and total comprehensive income for
the year 6,372 6,430
------------------------------------------- -------- --------
Earnings per share for profit attributable
to the equity holders of the Group during
the year
Basic earnings per share 3.26p 3.27p
Diluted earnings per share 3.26p 3.25p
------------------------------------------- -------- --------
Consolidated statement of financial position
As at 31 March
2020 2019
GBP'000 GBP'000
-------------------------------------------- -------- --------
Non -- current assets
Intangible assets 470 288
Right-of-use assets 1,175 -
Property, plant and equipment 751 761
Investments 2,472 1,112
Total non -- current assets 4,868 2,161
Current assets
Trade and other receivables 8,704 7,562
Derivative financial assets 193 164
Money market instruments with maturities
> 3 months 7,958 10,735
Cash and cash equivalents 14,294 12,966
-------------------------------------------- -------- --------
Total current assets 31,149 31,427
-------------------------------------------- -------- --------
Total assets 36,017 33,588
-------------------------------------------- -------- --------
Current liabilities
Trade and other payables (3,009) (2,736)
Corporation tax liabilities (601) (692)
Lease liabilities (544) -
Financial liabilities (2,191) (2,621)
Derivative financial liabilities (610) (109)
-------------------------------------------- -------- --------
Total current liabilities (6,955) (6,158)
-------------------------------------------- -------- --------
Non-current liabilities
Deferred tax liabilities (86) (29)
Provisions (200) -
Lease liabilities (615) -
-------------------------------------------- -------- --------
Total non-current liabilities (901) -
-------------------------------------------- -------- --------
Total net assets 28,161 27,401
-------------------------------------------- -------- --------
Equity
Issued share capital 50 50
Share premium account 2,259 2,243
Capital redemption reserve 26 26
Retained earnings 25,694 25,022
-------------------------------------------- -------- --------
Equity attributable to owners of the parent 28,029 27,341
-------------------------------------------- -------- --------
Non-controlling interests 132 60
-------------------------------------------- -------- --------
Total equity 28,161 27,401
-------------------------------------------- -------- --------
Chairman's statement
"Writing this statement in the middle of the Coronavirus
lockdown is a timely reminder both of the value of our asset-based
revenue model, and of the importance of adaptability."
Neil Record
Chairman
2020 will be remembered as the Coronavirus year. It is also the
year in which Record plc made some important decisions for its
future.
In February 2020, we announced that James Wood-Collins was
stepping down as CEO, and that he would be replaced by our Client
Team Director, Leslie Hill.
Before I describe the thinking behind this change, I want to pay
tribute to the efforts that James devoted to Record in his nine
years in this role. Under James's leadership, we re-established our
equilibrium following the Global Financial Crisis, and diversified
our range of currency market products and services.
Early in the year, the Board took the view that two imperatives
were emerging at Record: that it was becoming increasingly vital to
orientate the firm for growth, and it was also becoming
increasingly vital to establish succession in the most senior
executive posts at Record.
The Board took the view that Leslie Hill, 64, our veteran Client
Team Director, with 27 years already completed at Record, had the
skills and vision to deliver both growth and succession. This
change was facilitated by the arrival of a new Client Team
Director, Sally Francis-Cole, who comes with 20 years' experience
in FX sales.
Leslie sets out her plans in more detail in her statement.
Financial overview
Strong net inflows of $4.6 billion for the year (2019: outflows
of $4.5 billion) helped drive the 2.3% increase in our final AUME
of $58.6 billion, despite the negative impact on markets from
covid-19 and the consequent decrease of $4.5 billion in our AUME in
the final quarter.
Revenues increased by 2.4% to GBP25.6 million (2019: GBP25.0
million), operating profit fell slightly to GBP7.6 million (2019:
GBP7.9 million) and earnings per share remained broadly flat at
3.26 pence (2019: 3.27 pence).
Further information on AUME flows and financial results can be
found in the Operating review and Financial review sections.
Group strategy
I indicated above that the Board is prioritising growth and
succession in its strategy. This will mean building on our existing
strong base of current business, including a review of the products
and services that Record offers to its clients, and an assessment
of the way in which we deliver those products and services.
Record is no longer a young company. At 37 years old, we have
built up a modus operandi which is reliable and effective. However,
technological changes, FX market changes and the changing nature of
our client base means that the time has come to re-think how we
deliver our services in an increasingly technologically dominated
market.
Under Leslie's new leadership, we will embrace change to deliver
our goals.
Capital and dividend
Our capital policy aims to ensure retained capital broadly
equivalent to one year's worth of future estimated overheads
(excluding variable remuneration), in addition to capital assessed
as required for regulatory purposes, for working capital purposes
and for investing in new opportunities for the business.
Our dividend policy targets a level of dividend which is at
least covered by earnings and which allows for sustainable dividend
growth in line with the trend in profitability. It is also the
Board's intention, subject to financial performance and market
conditions at the time, to return excess earnings over ordinary
dividends for the financial year and adjusted for changes in
capital requirements, to shareholders, normally in the form of
special dividends.
The Board is recommending a final ordinary dividend of 1.15
pence per share (2019: 1.15 pence), with the full year ordinary
dividend at 2.30 pence, which is equivalent to the full year
ordinary dividend in respect of the prior year (2019: 2.30 pence).
The interim dividend of 1.15 pence per share was paid on 27
December 2019, and the final ordinary dividend of 1.15 pence per
share will be paid on 11 August 2020 to shareholders on the
register at 3 July 2020, subject to shareholders' approval.
The Board has considered at length the current market
conditions, including uncertainties surrounding global trade,
Brexit and the high likelihood of a global recession arising from
the Coronavirus. Such a high level of uncertainty brings with it
the need for a measured and prudent approach to ensuring the
business retains sufficient capital and liquidity to withstand any
negative impacts arising, whilst also allowing the business to
continue to invest in implementing its new strategy.
Against this backdrop, the Group has assessed its capital
requirement both in terms of the current market conditions and also
its anticipated costs and regulatory capital required for the
current financial year, which has resulted in an increase to
capital required in line with its policy. The net increase in
capital required is equivalent to 0.55 pence per share and
consequently the Board is announcing a special dividend of 0.41
pence per share to be paid simultaneously with the final ordinary
dividend. Total dividends for the year are 2.71 pence per share
(2019: 2.99 pence) compared to earnings per share of 3.26 pence per
share (2019: 3.27 pence).
The Board will continue to consider ordinary dividends and other
distributions to shareholders on a "total distribution" basis. The
total distribution for any year will be at least covered by
earnings, and will always be subject to the financial performance
of the business, the market conditions at the time and to any
further capital assessed as required under the policy described
above.
The Board
The only change to the composition of the Board was the
departure of James Wood-Collins in February 2020. The Board has
acted decisively in making the personnel changes I have outlined,
but more importantly, has helped executives focus on the importance
of change and renewal in every aspect of the firm.
Outlook
Many chairmen's statements written in the first half of 2020
will look ahead with a much larger degree of uncertainty than is
usually the case - and this one is no different. At the time of
writing, the UK is beginning to gradually ease restrictions, our
offices remain closed, and all our activity is taking place by
remote working using technology.
I cannot predict the path of the global economy, of the global
regulatory environment or of global political developments with any
clarity. However, it is at least clear to me that the services we
offer - the management of risks and opportunities associated with
foreign currency markets - will continue to find demand from
clients. If our new strategy is successful, then we should see that
demand rising, whatever the global backdrop.
On behalf of the Board, I would like to thank everyone at Record
for their hard work and extraordinary adaptability in the face of
the unprecedented demands of the Coronavirus lockdown. Many of my
colleagues were working very long days in surroundings unfamiliar
to business activities, and their commitment and flexibility has
meant that our clients have continued to receive the services that
they pay us for.
Neil Record
Chairman
18 June 2020
Chief Executive Officer's statement
"Our strategy is focused on accelerating growth, planning for
generational change and in delivering added-value for all of our
stakeholders"
Leslie Hill
Chief Executive Officer
I am delighted to welcome you to this year's Annual Report, my
inaugural report after my appointment as Record's CEO in February
2020, and just prior to the end of the financial year. For those of
you who are new to Record, I joined the business in 1992, and was
appointed as a Director and Head of Client Team in 1999, having
previously gained experience as a Director and Head of Corporate
Foreign Exchange sales worldwide for Merrill Lynch.
I am fortunate in being able to take over from James
Wood-Collins, who has shown full commitment over the last nine
years in building Record into the strong and more diversified
business that it is today, and for which I and the rest of the
Board are grateful.
Looking ahead, I see some exciting opportunities for the Group
to accelerate growth and to realise its full potential, and I fully
intend to capitalise on as many of these opportunities as
possible.
Company strategy
Record is a listed specialist currency management business which
has built a unique position with over 37 years in the FX market.
Over this period, we have built a robust and diversified business
with an excellent team of committed and talented professionals.
Our strategy has always been to deliver high quality products
and services to our clients, using our thought leadership married
with our capabilities in research and innovation. This approach has
served us well over 37 years and has enabled us to build
long-standing and trusted relationships with our clients, and a
strong and sustainable business.
Using this foundation, my role is to now to develop the business
by injecting new energy and vigour to deliver on the growth
opportunities that we currently anticipate through diversification
and modernisation. By taking the right steps to leverage our
position as a trusted and professional provider of Currency Risk
Management and Risk for Return products, in combination with the
introduction of new talent and leadership, for example in the shape
of our new Head of Global Sales, Sally Francis-Cole and others, I
believe we have the resources to sharpen our client focus and put
the business on an accelerated growth trajectory over the medium
term. Looking forwards we will look to further expand and
strengthen our sales team to be able to capitalise on the new
product offerings we are developing.
Our plan is also to deepen and broaden our interaction with
existing and potential clients, both in our traditional product
range and in the new diversifying products and services we are
evolving. This will enable us to strengthen our business, and use
our financial stability and liquid asset rich balance sheet to
launch new initiatives and innovate - always keeping a very firm
eye on what our clients tell us they want and will pay us to
provide.
This requires a change of emphasis both in how we utilise our
current resources most effectively, and also where we need to focus
additional effort and resources going forward in order to achieve
our goals. Our strategy will seek to consolidate our presence in
our key international markets, as well as extend our reach across
and into different geographical markets, using diversified and
innovative products and services, and using and expanding our
existing relationships both with investment consultants and
clients.
Our success will depend upon reinforcing, and further building
on the cornerstones to our strategy, which are:
-- Quality client experience
-- Technology and innovation
-- Talent development
Quality client experience
A feature of many of our service offerings in recent years has
been fee compression. We have countered this by working hard to add
value in many ways to client hedging portfolios, for example Cash
Collateralisation services, enhancements to Passive Hedging to
reduce hedging cost, and hedging of difficult and complex
portfolios, like Illiquid Assets and Emerging Market Equities and
Bonds. During the recent covid-19 crisis we found that clients
really appreciated our stability, reliability and our deep
infrastructure. By helping them with complex derivatives as well as
the more standard hedging we have been able to show that although
clients may underestimate the value of a full service offering when
times are good, it comes into its own at difficult times.
We do not necessarily expect this phenomenon to persist forever,
but I know our staff really enjoy being able to "show what they can
do" - like all good craftsmen and artists! This is a deep and
abiding source of satisfaction in all our offices, and makes us a
true specialist, who can nevertheless rise to a fresh
challenge.
Our long-standing client relationships allow us to know each
other well. As a result clients allow us, from time to time, to try
things that are new to them, and sometimes to us, allowing us to
diversify. This mutual trust is a source of our strength and also
our future growth. Seeding new products and ideas is always a
challenge and so we look for trusted and trusting seed capital to
get ideas off the ground, and I believe this will be a great launch
pad for our future growth, to strengthen our business and expand
the base from which we operate.
Technology and innovation
Technology is changing both the way we do business and the
markets in which we do business. Observing and investing in new
technology is essential for ensuring our business remains
competitive in terms of our client servicing, our product
innovation and productivity, and for maintaining profitability. We
will adopt relevant and innovative technology where we can be
satisfied it offers cost-effective opportunities to maximise the
possibilities for new products and services as well as enhancing
our current capabilities and efficiencies.
In terms of product innovation, our new products and services
initiatives have included the hiring of an experienced Macro and
Currency Manager, John Floyd. His Dynamic Macro Currency strategy
has now been funded within the Record - Currency Multi-Strategy
Fund. We intend to build a suite of Return-Seeking products of
which we can be proud.
In addition we have been asked by clients to develop our EM
currency offering using so-called Frontier Currencies, and this is
another step in the evolution of our EM currency product, and was
seeded this year.
We have developed an ESG/impact bond offering that has also been
attracting some attention, and while it is still early stages and
we have yet to see real fruits from this innovation, we have good
reason to think that this is a robust trend which will last a long
time - long enough for us to be able to add this product range to
our offering.
The effects of the covid-19 lockdown are also allowing us to
consider how we can harness technology to evolve the way we work,
the locations we operate from and the way we interact with each
other and with our clients; we are being asked to engage in virtual
due diligence meetings for example and we are planning our first
virtual Final for a mandate in Europe. We hope this will be a
feature of our business going forward, allowing us to be cost
efficient and have greater global reach.
Talent development
This year we have started to work ever harder to develop our
young talented professionals, by rewarding them with training,
support, added responsibility and remuneration to take them to the
higher ranks within our organisation. We offer a collegiate working
environment but work within clear and firmly held beliefs and
structures. Everyone knows what they are supposed to do, and are
given help to achieve their goals and be the best that they can
be.
New hires in our Zurich, New York and London offices are an
important part of our talent recruitment and development. In
addition, existing staff have a chance to elect to work overseas,
and access our network for high quality training and work
experience, on occasion, outside our own office environment.
It is essential we build a really strong plan for generational
change, and we will not hold back here. It is often hard to
achieve, but we believe that by taking the lead from our Chairman,
who has been courageous over the years in allowing new talent to
flourish, we can achieve the same again.
Market overview
Following a relatively calm first half, the impact of covid-19
on currency markets was reflected in heightened volatility, reduced
liquidity and sharp increases in bid/offer spreads in the final
quarter of our financial year. In such times, our established
long-term trading relationships come to the fore, allowing us to
cement our relationships with clients by ensuring we respond to
their requests and continue to deliver the highest levels of client
service and best execution available. As we enter a period of
heightened economic uncertainty and probable recession following
covid-19, the importance of having a trusted partner with the
expertise and experience to help clients navigate through such
uncertain markets cannot be underestimated, and this provides us
with an excellent opportunity for growth.
More detailed information on foreign exchange markets over the
period is provided in the Markets section below.
Investment performance
As mentioned above, during the year we introduced a new
return-seeking currency strategy to our portfolio: the Dynamic
Macro Currency strategy managed by John Floyd, which is
complementary to Record's more systematic return-seeking currency
strategies and which offers some welcome diversification to our
return-seeking product suite.
The Dynamic Macro strategy tends to perform well in more
volatile markets as evidenced by the overall positive performance
for the year. Conversely, and notwithstanding three quarters of
positive performance to the end of the calendar year, the
Multi-Strategy product delivered overall negative performance for
the year linked to the impact of covid-19 on markets in the final
quarter.
Product performance data is provided in the Operating review
below.
Asset flows and financial performance
AUME closed the year at $58.6 billion, increasing by 2.3% in US
dollar terms, and increasing by 7.5% to GBP47.3 billion in sterling
terms. Net inflows for the first six months of $2.0 billion were
further bolstered by an additional $2.6 billion in the second half,
in aggregate representing 8% of the opening AUME position. This was
driven predominantly by inflows of $4.1 billion into Passive
Hedging, although both Dynamic Hedging and Currency for Return saw
inflows of $0.2 billion and $0.3 billion during the year
respectively.
Detailed analysis of AUME is provided in the Operating review
below.
The management fees of GBP25.6 million increased 2.4% (2019:
GBP25.0 million). We have invested in our people and technology and
will continue to do so cost effectively as we aim for growth, which
we believe will strengthen the business over the longer term.
Consequently, the Group's operating margin reduced marginally from
32% to 30%, and profit before tax decreased by 3.2% to GBP7.7
million (2019: GBP8.0 million). Basic earnings per share was
broadly flat at 3.26 pence (2019: 3.27 pence).
The Financial review below gives additional commentary.
Outlook
Rigour and discipline is always hard to marry with creativity
and flexibility and it is this art that we seek to achieve, staying
relevant, and surprising our clients and prospects with the range
and quality of our thinking, and with the ability to deliver what
we promise.
Our flexibility and capability to react to volatile and
occasionally extreme market conditions has been proved over the
last few months, both in terms of continuing to service our clients
to the high levels they expect and deserve, but also in maintaining
the business continuity under the most severe circumstances, whilst
always ensuring the well-being and motivation of our staff. In the
current market conditions we need to be careful not to overpromise
but always to try and over achieve.
We are a strong and resilient business, with a long-standing
client base and a cash generative business model. Our team is
talented and experienced, we are committed to our business, to each
other and of course, always, to our clients. This I believe will
allow us to take our business to the next level and we will give it
everything we have to achieve that goal.
Leslie Hill
Chief Executive Officer
18 June 2020
Markets
Our market
The currency market represents the biggest and most liquid
market available, with exceptionally low transaction costs and
daily FX volumes averaging $6.6 trillion (source: BIS Triennial
Central Bank Survey of Foreign Exchange and OTC Derivatives Markets
2019). The FX market is essential to global trade and finance and
includes a high proportion of not -- for -- profit or forced
participants, resulting in profit -- seeking financial institutions
continuing to represent a minority of FX market participants.
Consequently, the market displays persistent patterns of behaviour
or inefficiencies which Record believes can best be exploited by a
combination of systematic and discretionary processes.
The FX market continues to offer opportunities for investors.
Record's expertise is in identifying and understanding these
opportunities and then working with clients to understand how such
opportunities may be used to their best advantage, taking account
of each client's individual circumstances and attitude to risk.
Global and macro trends
Brexit
The UK formally left the European Union ("EU") on 31 January
2020 and entered the transition period, during which it continues
to follow EU rules whilst the negotiations continue on the future
relationship. Whilst the UK Government has previously committed to
the conclusion of the transition period by the end of 2020, this
was prior to the emergence of covid-19 and a full understanding of
its effects on the global economy and the distraction from, and
consequent delay to Brexit negotiations. At the time of writing, it
remains uncertain on how the negotiations on the future
relationship will conclude.
What this means for our business
Record has performed a client-by-client assessment of the
regulatory basis on which we currently provide services to EU27
clients. As a result, and in addition to industry-wide measures
such as the Memoranda of Understanding agreed between the Financial
Conduct Authority and EU regulators previously announced, at the
time of writing we are confident we will be able to continue to
provide services to all current EU27 clients post-Brexit, even in
the event of a "hard Brexit" with no extension to the transition
period or no other equivalence arrangements.
Subject to negotiations, it remains possible that we would be
constrained in marketing our products and services to new clients
in certain EU27 countries, although even this constraint is
moderated by enabling legislation in many such countries, allowing
authorised UK firms to continue to market to professional clients.
The situation will be subject to further assessment in the light of
any regulatory changes, but the establishment of an authorised
subsidiary within the EU27 countries to eliminate any such
remaining constraints remains a possibility subject to an
assessment of the costs and benefits of doing so.
Despite this uncertainty, and as explained above, we expect to
be able to continue to serve all our current EU27 clients,
irrespective of whether and how the UK leaves the European
Union.
Industry trends
Margin compression and value for money
The average margin on our hedging products and across the
industry generally has been under pressure over time from clients
seeking to reduce fees in a low yield environment, for example by
the use of competitive fee pressure or through increased tailoring
of their product for no increase in fees.
What this means for our business
Record does business in a market subject to constant fee
pressure and competition, and has done so successfully for many
years. We have built our business based on the highest levels of
client service, innovative products, robust infrastructure and
professional expertise. During periods of relative calm in FX
markets, it may be natural for clients to underestimate the
potential dangers of volatility, or the value delivered through
such high service levels and expertise. However, changing cycles
add to uncertainty in markets and bring heightened volatility and
reduced liquidity.
Consequently, opportunities continue for Record to illustrate
the value to clients of its expertise and experience collected over
37 years, and to provide innovative products to react to clients'
needs. Such opportunities are only further heightened by more
extreme market conditions such as the current covid-19
pandemic.
Price transparency
Recent years have seen a move towards heightened transparency
over costs and fees across our industry, driven by regulatory
pressure aimed at fair competition and consistent methods of
reporting, and the need to build investor confidence and trust in
the sector generally.
What this means for our business
Record acts in a fiduciary capacity for its clients with the
continuing obligation to provide best execution and to ensure full
transparency and disclosure of all fees for the investment
management services provided to its clients. We welcome and fully
support all initiatives aimed at achieving full transparency of
fees and charges within our industry. In this respect we have
previously worked closely with the FCA's Institutional Disclosure
Working Group ("IDWG"), and more latterly on the Cost Transparency
Initiative ("CTI") in conjunction with the Investment Association,
Pensions and Lifetime Savings Association ("PLSA") and the Local
Government Pension scheme ("LGPS") Advisory Board, using our
knowledge and experience within the FX markets to help create a new
framework for the reporting of charges and costs to pension scheme
clients. Record is a signatory to the LGPS Investment Code of
Transparency. We believe that fulfilling the long-term aim of
achieving full cost transparency across the investment management
industry can only be in the best interests of all clients, whilst
ensuring a level playing field and providing opportunities for
firms such as ours already providing full transparency over costs
and fees to its clients.
Advances in technology
Over recent years technological advances have changed the way in
which businesses in our sector need to operate. This includes how
data is collected and analysed for investment purposes, having the
ability to trade using electronic platforms and algorithms,
enabling improved client reporting processes, and introducing
efficiencies in more manual processes and procedures. The speed of
change is dramatic and will continue to change the way business is
done in our sector going forward.
What this means for our business
Technology has a critical role to play in our business, both to
create efficiency to deliver reliable low cost solutions for
clients, and to drive innovation in creating new products and
markets. Technologies such as artificial intelligence and machine
learning, as well as improvements in data science and the ability
to utilise opportunities offered through third party systems, can
all contribute to the aim of improving our investment management
products and services. As a result, the need to continue to observe
and invest in technology and innovation is paramount to protect our
capability to respond effectively to disruption and change in our
markets, as well as to support our investment management processes
and systems, improve client service and enhance our operating
efficiency and effectiveness.
The changing pattern of FX liquidity provision
Historically the role of liquidity providers and market makers
in the FX markets has been filled by investment banks. However,
this role is now increasingly being filled by players other than
banks due to the increased regulatory burden and capital
constraints imposed on banks following the financial crisis.
What this means for our business
Market stress or increased volatility can cause large
differentials in the pricing of derivatives due to the lack of
market makers, including those banks previously willing to take
risk onto their balance sheet. In extreme circumstances, the risk
of reduced liquidity increases exponentially such that those market
participants not expert in navigating the financial markets or
without relationships built over many years with liquidity
providers will either be forced to pay significantly increased
spreads, or may not be able to trade at all depending on their
method of accessing the market. Such circumstances provide
opportunities for our business to offer unconflicted and
independent expertise in navigating such markets, ensuring as far
as possible best execution and access to liquidity that would
otherwise not be accessible.
Market review
FX volatility was broadly contained in the first half of the
year, although it changed abruptly in the first quarter of 2020 as
the severity of the covid-19 pandemic became apparent.
Review of the year ended 31 March 2020
The first half of the financial year saw a re-escalation of
trade tensions between the US and China following what proved to be
a short-lived truce. The visible effects on global trade and
activity compelled major central banks to embark on easing cycles
and by December several had cut rates - including the Federal
Reserve three times. FX volatility was broadly contained and the
relative strength of the US economy meant that the US dollar was
supported versus most other developed market currencies.
The global economic outlook shifted abruptly in the first
quarter of 2020. As the severity of the covid-19 pandemic became
apparent, governments rushed to shutter economies and all
non-essential activity in order to prevent the spread of the virus.
The unprecedented sudden stop in activity led to a scramble for
credit by businesses globally in order to stay afloat and cover
lost revenues. The surge in credit demand and highly uncertain
outlook saw credit spreads widen sharply and equity markets quickly
fall into bear market territory. With the prospect of an economic
and liquidity shock transforming into a financial and solvency
shock, policymakers acted with a greater sense of urgency than even
in the global financial crisis. In order to prevent an economic
depression, developed market central banks conducted emergency rate
cuts, and most either restarted quantitative easing programmes or
began new ones.
The Federal Reserve unveiled a raft of measures designed to ease
credit conditions in the US economy and extended its infamous FX
swap lines to foreign central banks to ensure adequate US dollar
supply abroad. The fiscal response came later but also in force,
with governments unveiling packages for the provision of business
loans and guarantees, and income replacement for displaced workers.
By the end of March, the lines between fiscal and monetary policy
had blurred, but the herculean effort on the part of policymakers
appeared to have prevented an immediate financial collapse.
The acute demand for US dollars drove the world's reserve
currency notably higher against most developed market currencies,
while the Japanese yen and Swiss franc were supported by strong
external asset positions and the convergence of short-term
developed market yields towards the zero lower bound. As might be
expected, emerging market currencies were negatively affected by
the shock, with those countries starting from low bases of growth,
lacking fiscal room, and with reliance on external funding falling
the most. Asian emerging market currencies fared better as more
effective containment measures and the ability to enact
comprehensive fiscal packages provided relative economic
shelter.
Coronavirus ("covid-19")
The covid-19 pandemic has transformed economies and financial
markets. Many sectors incompatible with "social distancing" have
experienced substantial revenue and jobs losses. Reinforced by the
fall in commodity prices, this vulnerability extends in some cases
to entire national economies and currencies. Governments everywhere
navigate the trade-offs between virus containment and economic
losses. Fiscal and monetary policies have been wielded worldwide to
cover these losses. However, the capacity for policy response
varies greatly among countries, as does the method and effect of
implementation.
In the same way that many individuals are isolating at home to
protect themselves or others from effects of the virus, we see
isolationist tendencies in the response of national governments,
sometimes even at the local level. In this sense, we expect
covid-19 to catalyse trends which had begun before it arrived:
reduced trade, strained geopolitics, and hard borders. And yet,
this is locked in a paradox with the dense dollarisation of global
financial markets over the past decade. Indeed, one of the very
first revelations coming from this crisis was just how dependent
international (and local) finance was on US dollar liquidity. Just
as governments closed borders, they also clamoured for the currency
they shared with their neighbours.
We observed this demand for dollar liquidity across both spot
and swap rates, which have emerged as a barometer of liquidity
stress. The Federal Reserve and the IMF stepped in to fill the gap
as nations, banks and corporations aimed to cover funding needs.
And so, as events unfold, we expect the interplay of the virus's
real economic impact, risk sentiment, the demand for dollar
liquidity, and the supply to represent a dominant dynamic in
international markets including FX.
Despite the gradual easing of restrictions, risks of an acute
crisis have not passed, as losses continue to reverberate
throughout economies and financial markets. Longer-term risks have
also appeared, and it remains to be seen what the impact on growth,
productivity, price level and asset values is of extended policy
measures, high debt levels, coordinated fiscal and monetary policy,
and transformed social structure.
Beyond the economics of FX value, recent events have also had
substantive effects on the structure of the FX market itself. Many
of the structural changes observed over the past ten years - more
electronic trading and significant non-bank liquidity blurring the
line between participants and market makers - reversed in the blink
of an eye. Even as banks' risk capital faced new constraints
(corporates drawing on credit lines; rising credit risk in their
portfolios), they re-emerged as sole market makers. Electronic
trading is debilitated by volatile markets, with platform bid/ask
spreads having reached an order of magnitude greater than voice
quotes. Established trading relationships are proving more valuable
than at any other time since 2009 or the Swiss franc peg break in
2015.
Key performance indicators
Measuring our performance against our strategy.
The Board and Executive Committee use both financial and
non-financial key performance indicators ("KPIs") to monitor and
measure the performance of the Group against its strategic
priorities. Some KPIs link to specific strategic areas as noted
below, whilst others represent higher level key metrics in terms of
the Group's business and financial performance.
Financial KPIs
Revenue
Revenue is earned mainly from the provision of currency
management services in the form of management fees and performance
fees.
Revenue GBP million
FY-20 25.6
FY-19 25.0
FY-18 23.8
FY-17 23.0
FY-16 21.4
------------
Why this is important
Revenue is a key indicator of client experience, growth and a
key driver of profitability. AUME growth, fee levels sustained
through product enhancement, and investment performance in excess
of benchmarks all contributed to revenue growth during the
year.
Operating profit margin
Operating profit margin is an alternative performance measure,
calculated by dividing operating profit by revenue.
Operating profit %
margin
FY-20 30
FY-19 32
FY-18 31
FY-17 34
FY-16 32
---
Why this is important
Operating profit margin is an indicator of the efficiency of the
business in turning revenue into profit. Margin compression has
been a factor across the sector over a number of years, which
continues to impact the business. Further information can be found
in the Financial review section.
The Group aims to increase the operating profit margin over time
through investment in resources and technology to maintain its
premium products and services, whilst increasing operating
efficiency and developing more diversified revenue streams in
higher margin products.
Basic earnings per share ("EPS")
The Group aims to create shareholder value over the long term,
illustrated by a consistent growth in EPS.
EPS pence
FY-20 3.26
FY-19 3.27
FY-18 3.03
FY-17 2.91
FY-16 2.55
------
Why this is important
EPS measures the overall effectiveness of the business model and
drives both our dividend policy and the value generated for
shareholders.
Dividends per share ("DPS")
The Group's policy is that total distributions in any year will
be covered by earnings. The Group aims to pay a progressive
ordinary dividend and return surplus capital to shareholders where
it is in excess of business requirements, usually in the form of
special dividends.
DPS Ordinary dividend Special dividend
per share per share
pence pence
FY-20 2.30 0.41
FY-19 2.30 0.69
FY-18 2.30 0.50
FY-17 2.00 0.91
FY-16 1.65 nil
------------------ -----------------
Why this is important
Repeatable dividend payments illustrate the cash-generative
nature of Record's business and its strength in converting profits
into cash, and providing a suitable return to shareholders. The
ordinary dividend per share is unchanged on last year. The special
dividend per share has decreased by 0.28 pence resulting in a 9%
decrease in total dividends to 2.71 pence per share (2019: 2.99
pence per share).
Non-financial KPIs
AUME
As a currency manager, Record manages only the impact of foreign
exchange and not the underlying assets of its clients, therefore
its AUM (Assets Under Management) are notional. 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.
AUME $ billion
FY-20 58.6
FY-19 57.3
FY-18 62.2
FY-17 58.2
FY-16 52.9
----------
Why this is important
AUME is a key driver of future revenue and an indicator of
business growth. AUME increased by 2.3% for the year, including net
inflows of $4.6 billion, notwithstanding the negative impact of
covid-19 on the final quarter of the year.
Clients
Client numbers represent the number of separate legal entities
that have appointed Record directly as an investment manager or
invested in a Record fund at the year end, and acts as an indicator
of business growth.
Clients
FY-20 72
FY-19 65
FY-18 60
FY-17 59
FY-16 58
---
Why this is important
The sustained growth in client numbers is indicative of
successful client engagement, quality client experience and the
building of strong "trusted adviser" relationships.
Client longevity
Client longevity measures how long Record has been providing
currency management services to each client with a mandate active
at 31 March 2020.
Client longevity %
0-1yrs 14
1-3yrs 28
3-6yrs 22
6-10yrs 14
>10yrs 22
---
Why this is important
Client longevity is both an indicator of recent client growth,
and the Group's success in sustaining quality client relationships
through investment cycles.
Average number of employees
The average number of employees through the year includes
Non-executive Directors.
Average number of
employees
FY-20 82
FY-19 85
FY-18 81
FY-17 73
FY-16 69
---
Why this is important
Average employee numbers is an indicator of growth and also of
how effectively the Group is using technology to make processes
more efficient.
Staff retention
Staff retention is the number of employees who were employed by
Record throughout the period as a percentage of the number of
employees at the beginning of the period.
Staff retention %
FY-20 81
FY-19 84
FY-18 93
FY-17 83
FY-16 88
---
Why this is important
The Group's third cornerstone is talent development, which
includes the development and retention of our talented employees.
Whilst every business expects a degree of employee turnover, the
monitoring of employee retention acts as a general indicator for
factors affecting our employees' well-being, development, and
issues such as longer-term succession.
Employees with equity interest
The percentage of employees who own shares in Record plc at year
end.
Employees with equity %
interest
FY-20 69
FY-19 70
FY-18 72
FY-17 68
FY-16 69
---
Why this is important
The alignment of employee interests with those of our
shareholders is an important factor in ensuring the longer-term
success of our business and is an important tool in managing
generational change.
Operating review
AUME increased by 2.3% in US dollar terms, assisted by aggregate
net inflows of $4.6 billion across the year.
Product investment performance
Hedging
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.
Passive Hedging
Record has developed an enhanced Passive Hedging service, which
aims to reduce the cost of hedging by introducing new flexibility
into the implementation of currency hedges without changing the
hedge ratio. While the strategy is partly systematic, the episodic
nature of many opportunities exploited by the strategy means it
requires a higher level of discretionary oversight than has
historically been associated with Passive Hedging. Exceptional
levels of volatility in the FX derivatives market during the latter
part of the year has negatively affected some clients. However, for
others this volatility has increased the scope of opportunities
available.
The table below shows the total value added relative to a
fixed-tenor benchmark for an enhanced Passive Hedging programme for
a representative account.
Return for
year to Return since
31 March
2020 inception
------------------------------------------------- ---------- ------------
Value added by enhanced Passive Hedging programme
relative to a fixed-tenor benchmark (0.05%) 0.09% p.a.
------------------------------------------------- ---------- ------------
Dynamic Hedging
The performance of our Dynamic Hedging product depends on how
the foreign currencies change in value relative to the base
currency of a client. During the year, US investors saw losses from
currency on international assets when valuing positions in US
dollars, as the US dollar appreciated against the majority of G10
currencies. Record's Dynamic Hedging product adjusted hedge ratios
in line with US dollar fluctuations, and on aggregate helped
protect clients against currency losses.
Return for
year to Return since
31 March
2020 inception
---------------------------------------- ---------- ------------
Value added by Dynamic Hedging programme 0.80% 0.54% p.a.
---------------------------------------- ---------- ------------
Currency for Return
Record's Currency for Return suite of products includes both
systematic and discretionary investment styles. The systematic
offering combines five strategies under the Currency Multi-Strategy
product, whilst the Dynamic Macro Currency product uses a more
discretionary approach.
Currency Multi-Strategy
Record's principal Currency for Return product during the year
was Currency Multi-Strategy. This combines a number of diversified
return streams, which include:
-- Forward Rate Bias ("FRB", also known as Carry) and Emerging
Market strategies which are founded on market risk premia and as
such perform more strongly in "risk on" environments; and
-- Momentum, Value and Range Trading strategies which are more
behavioural in nature, and as a result are less risk --
sensitive.
Record's Multi-Strategy mandates delivered negative overall
performance over the year. The first three quarters saw cumulative
outperformance but gains were more than offset by losses in the
final quarter as a result of the covid-19 pandemic.
Dynamic Macro Currency
The Dynamic Macro Currency strategy utilises a modern,
multi-disciplined investment approach to developed and emerging
market currencies. A four-pillared proprietary process integrates
macroeconomics, market neurology, and quantitative price metrics
with disciplined risk management, with analysis targeting the
generation of a variant perception of future market price
direction. The portfolio is innovatively structured and managed to
implement investment views and provide an upside asymmetric return
profile. Historically, the long-term track record has been
negatively correlated with traditional asset classes such as the
S&P500, but has also provided positive risk-adjusted returns
during "risk on" environments.
Over the year, the portfolio benefited from our independent
research ethos and risk management discipline, including early
recognition of the potential severity and global feedback
mechanisms of covid-19. The strategy was able to develop early,
proprietary models to monitor the impact of the virus. Successful
management of the portfolio across various currencies, instruments
and time horizons resulted in a +0.82 excess return-to-risk ratio
for the year ending 31 March 2020.
Return for
12 months Volatility
to Return since since
31 March
2020 inception inception
Fund name Scaling % % p.a. % p.a.
----------------------------- ------- ---------- ------------ ----------
Currency Multi-Strategy Fund 4.5-6 (7.82%) (5.42%) 9.11%
----------------------------- ------- ---------- ------------ ----------
Return for
12 months Volatility
to Return since since
31 March
2020 inception inception
Returns % % p.a. % p.a.
----------------------------------- ---------- ------------ ----------
Dynamic Macro Currency 4.20% 4.25% 9.30%
Record Multi -- Strategy composite (3.84%) 0.60% 3.14%
----------------------------------- ---------- ------------ ----------
Scaling
The Currency for Return product group allows clients to select
the level of exposure they desire in their currency programmes. The
segregated mandates allow clients to select the level of scaling
and/or the volatility target. The pooled funds have historically
offered clients a range of scaling and target volatility
levels.
It should be emphasised that in this case "scaling" refers to
the multiple of the aggregate notional value of forward contracts
in the currency programme, to the segregated mandate size or the
pooled fund's net assets. This is limited by the willingness of
counterparty banks to take exposure to the segregated client or
pooled fund. The AUME of those mandates where scaling or a
volatility target is selected is represented in Record's AUME at
the scaled value of the mandate, as opposed to the segregated
mandate size or the pooled fund's net assets.
AUME development
AUME expressed in US dollar terms finished the year at $58.6
billion, an increase of 2.3% (2019: $57.3 billion). When expressed
in sterling, AUME increased by 7.5% to GBP47.3 billion (2019:
GBP44.0 billion).
AUME movements
AUME at 1 April
2019 57.3
Net flows + 4.6
Markets - 3.2
FX effects and
scaling - 0.1
------
AUME at 31 March
2020 58.6
------
Passive Hedging AUME increased by 4.3% to $50.3 billion at the
end of the year (2019: $48.2 billion), including inflows of $2.0
billion from new clients, and net inflows of $2.1 billion from
adjustments by existing clients. Market movements had an impact of
reducing AUME by $2.2 billion, whilst movements in exchange rates
had a much smaller positive impact increasing AUME by $0.2
billion.
Dynamic Hedging AUME ended the year at $2.5 billion (2019: $3.1
billion), a decrease of 19% represented by the impact of market
movements which reduced AUME by $0.8 billion, and was partially
offset by net inflows from existing clients of $0.2 billion.
Notwithstanding net inflows of $0.3 billion during the year,
Currency for Return AUME remained broadly unchanged at $2.6 billion
at the end of the year (2019: $2.7 billion). Movements in exchange
rates and scaling adjustments on mandates with fixed target
volatilities both decreased AUME by $0.3 billion and $0.1 billion
respectively.
Multi-product AUME started and ended the year at $3.0 billion.
Tactical positions taken by clients during the year temporarily
increased AUME in the third quarter, which subsequently reversed in
the fourth quarter as a result of market movements.
Market performance
Record's AUME is affected by movements in market levels because
substantially all the Passive and Dynamic Hedging, and some of the
Multi-product mandates, are linked to equity, fixed income and
other market levels. Market movements decreased AUME by $3.2
billion in the year ended 31 March 2020 (2019: increased $2.3
billion).
Further detail on the composition of assets underlying our
Hedging and Multi-product mandates is provided below to help
illustrate more clearly the impact of equity and fixed income
market movements on these mandate sizes.
AUME composition by underlying asset class as at 31 March
2020
Fixed
Equity income Other
% % %
---------------- ------ ------ -----
Passive Hedging 28% 39% 33%
Dynamic Hedging 90% 0% 10%
Multi-product 0% 0% 100%
---------------- ------ ------ -----
Forex
Approximately 89% of the Group's AUME is non -- US dollar
denominated. Therefore, foreign exchange movements may have an
impact on AUME when expressing non-US dollar denominated AUME in US
dollars. Foreign exchange movements increased AUME by $0.1 billion
over the year. This movement does not have an equivalent impact on
the sterling value of fee income.
At 31 March 2020, the split of AUME by base currency was 13% in
sterling, 55% in Swiss francs, 11% in US dollars, 15% in euros and
6% in other currencies.
AUME composition by base currency
Base currency 31 March 2020 31 March 2019
----------------- ------------- -------------
Sterling GBP 6.3bn GBP 5.7bn
US dollar USD 6.2bn USD 6.3bn
Swiss franc CHF 31.0bn CHF 32.5bn
Euro EUR 8.1bn EUR 8.3bn
Australian dollar AUD 1.6bn AUD 1.0bn
Canadian dollar CAD 3.5bn CAD 0.6bn
Singapore dollar SGD 0.0bn SGD 0.1bn
Swedish krona SEK 3.9bn SEK 3.7bn
----------------- ------------- -------------
Product mix
AUME composition by product
31 March 2020 31 March 2019
--------------- ---------------
US $bn % US $bn %
-------------------- -------- -------- -----
Passive Hedging 50.3 86% 48.2 84%
Dynamic Hedging 2.5 4% 3.1 5%
Currency for Return 2.6 4% 2.7 5%
Multi-product 3.0 5% 3.0 5%
Cash 0.2 1% 0.3 1%
-------------------- -------- ----- -------- -----
Total 58.6 100% 57.3 100%
-------------------- -------- ----- -------- -----
The mix of AUME remained broadly consistent with the prior year,
with aggregate Hedging AUME representing 90% (2019: 89%).
Financial review
"The Group has shown its resilience through a challenging year,
and remains independent and profitable supported by its strong and
liquid balance sheet."
Steve Cullen
Chief Financial Officer
Overview
Total revenue for the year increased by 2.4% to GBP25.6 million
(2019: GBP25.0 million) and operating expenses, excluding variable
remuneration, increased by 6.8% to GBP14.2 million. Variable
remuneration rose to GBP3.5 million (2019: GBP3.4 million), with
the operating profit margin decreasing to 30% (2019: 32%) and
profit before tax fell by 3.2% to GBP7.7 million (2019: GBP8.0
million).
Profit and loss (GBPm)
2020 2019
---------------------------------- ------ ------
Revenue 25.6 25.0
Cost of sales (0.3) (0.4)
---------------------------------- ------ ------
Gross profit 25.3 24.6
Personnel (excluding GPS) (8.6) (8.2)
Non -- personnel cost (5.7) (5.1)
Other income or expense 0.1 -
---------------------------------- ------ ------
Total expenditure (excluding GPS) (14.2) (13.3)
GPS (3.5) (3.4)
---------------------------------- ------ ------
Operating profit 7.6 7.9
---------------------------------- ------ ------
Operating profit margin 30% 32%
Net interest received 0.1 0.1
---------------------------------- ------ ------
Profit before tax 7.7 8.0
Tax (1.3) (1.6)
---------------------------------- ------ ------
Profit after tax 6.4 6.4
---------------------------------- ------ ------
Revenue
Record's revenue derives from the provision of currency
management services, fees for which can be charged through
management fee only or management plus performance fee structures,
which are available across Record's product range. Management fee
only mandates are charged based upon the AUME of the product, and
management plus performance fee structures include a lower
percentage fee applied to AUME, and a proportional share of the
specific product performance measured over a defined period.
Management fees are typically charged on a quarterly basis,
although Record may charge fees monthly for some of its larger
clients. Performance fees can be charged on quarterly, six-monthly
or annual performance periods on the basis agreed with the
particular client.
As shown under AUME development above, average levels of AUME,
and hence management fees, increased across the year predominantly
as a result of net inflows of $2.0 billion and $2.6 billion over
the first and second halves respectively. These were partially
offset by net decreases due to market movements for the year of
$3.2 billion. The period up to the last quarter of the year showed
an increase of $1.3bn, followed by a $4.5 billion decrease in the
final quarter linked to the covid-19 outbreak.
Record's aggregate revenue for the year increased by 2.4% to
GBP25.6 million, including performance fees of GBP1.8 million
(2019: GBP2.3 million).
Revenue analysis (GBPm)
Year Year
ended ended
31 Mar 31 Mar
2020 2019
------------------------------- ------ ------
Management fees
Passive Hedging 12.0 11.6
Dynamic Hedging 4.0 4.6
Currency for Return 2.0 1.8
Multi-product 5.1 4.3
------------------------------- ------ ------
Total management fees 23.1 22.3
------------------------------- ------ ------
Performance fees 1.8 2.3
Other currency services income 0.7 0.4
------------------------------- ------ ------
Total revenue 25.6 25.0
------------------------------- ------ ------
Management fees earned during the year increased by 3.7% to
GBP23.1 million (2019: GBP22.3 million). The increase in management
fees of GBP0.8 million more than offset the decrease in performance
fees of GBP0.5 million for the year.
Management fees
Passive Hedging management fees increased by GBP0.4 million to
GBP12.0 million for the year, an increase of 3.6% (2019: GBP11.6
million) in line with the higher average Passive Hedging AUME over
the year.
Dynamic Hedging management fees fell by 13.1% to GBP4.0 million
(2019: GBP4.6 million), predominantly reflecting the reduction in
AUME seen in the final quarter of last year, partially offset by
net inflows this year of $0.2 billion.
Currency for Return management fees increased by 11.7% to GBP2.0
million, reflecting movements in AUME including net inflows of $0.3
billion. Multi-product management fees increased by 18.6% to GBP5.1
million, bolstered by the temporary tactical mandate activity seen
in the second half of the year.
Average management fee rates remained broadly constant
throughout the year ended 31 March 2020. However, the trend of
increased margin pressure seen in recent years across our industry
continues, with clients seeking reduced fees rates or increased
tailoring for existing fees, especially across our Passive Hedging
offering.
Performance fees
Performance fees are derived from a combination of hedging and
return-seeking products. Aggregate performance fees of GBP1.8
million were earned during the year (2019: 2.3 million).
Other currency services income
Other currency services income totalled GBP0.7 million (2019:
GBP0.4 million) and consists of fees from ancillary currency
management services including collateral management, signal hedging
and tactical execution services. Fees charged for these ancillary
services are not linked to AUME.
Expenditure
Cost of sales
Cost of sales comprises referral fees and costs in relation to
the Record Umbrella Fund.
Operating expenditure
The Group operating expenditure (excluding variable
remuneration) increased by 6.8% to GBP14.2 million for the year
(2019: GBP13.3 million).
Growth in personnel costs of 4.9% to GBP8.6 million (2019:
GBP8.2 million) reflects salary increases arising as a result of
internal promotions during the year, plus the effect of recruiting
at more senior levels towards the end of the financial year. The
full year effect of these movements will be reflected in an
increase in personnel costs for the forthcoming year.
Non-personnel costs increased by 11.8% during the year to GBP5.7
million (2019: GBP5.1 million). The Group continued to invest in
technology and to improve the resilience of its systems, reflected
by an increase in IT-related costs of GBP0.3 million which are
expected to increase in the forthcoming year. One-off
project-related costs totalled GBP0.3 million, including technical
consultancy and professional fees.
Other income was GBP0.1 million for the year (2019: GBPnil) and
represents net gains made on derivative financial instruments
employed by the Group's seed funds, hedging activities, and other
FX adjustments or revaluations.
Group Profit Share ("GPS") Scheme
The Group operates a discretionary GPS Scheme i.e. variable
remuneration, which is linked to both the financial performance of
the Group and the achievement against individual performance
objectives for staff. Historically, a long -- term average of 30%
of underlying operating profit before GPS ("GPS pool") has been
made available to be awarded to staff. However, for the year ended
31 March 2020 the Remuneration Committee introduced changes to the
operation of the scheme with the aim of rewarding individual
employee behaviour that drives revenue growth, improvements to
efficiency and reduced costs. Consequently, the expectation is that
the average GPS % will now diverge from the long-term average due
to the Remuneration Committee using the flexibility and discretion
it already holds in varying the GPS pool between 25% to 35% of
underlying operating profit before GPS.
For the year ended 31 March 2020, the GPS pool is 31.4% of pre
-- GPS underlying operating profit, which represents GBP3.5
million, an increase of 3.8% over the previous financial year
(2019: GBP3.4 million).
Operating profit and margin
Group operating profit decreased by 2.9% to GBP7.6 million
(2019: GBP7.9 million) and the Group operating margin decreased to
30% (2019: 32%). Notwithstanding the increase in revenue for the
year, the continued investment in personnel and other resources for
the year have impacted the operating margin.
Cash flow
The Group consolidated statement of cash flows is shown in the
financial statements.
The Group's year end cash and cash equivalents stood at GBP14.3
million (2019: GBP13.0 million). The cash generated from operating
activities before tax is shown in note 25 to the financial
statements and was GBP7.9 million (2019: GBP8.2 million). During
the year, taxation of GBP1.4 million was paid (2019: GBP1.2
million) and GBP5.9 million was paid in dividends (2019: GBP5.5
million).
At the year end, the Group held money market instruments with
maturities between three and twelve months, worth GBP8.0 million
(2019: GBP10.7 million). These instruments are managed as cash by
the Group but are not classified as cash under IFRS rules (see note
18 of the financial statements for more details).
Dividends
An interim ordinary dividend of 1.15 pence per share (2019
interim: 1.15 pence) was paid to shareholders on 27 December 2019,
equivalent to GBP2.3 million.
As disclosed in the Chairman's statement, the Board is
recommending a final ordinary dividend of 1.15 pence per share,
equivalent to GBP2.3 million, taking the overall ordinary dividend
for the financial year to 2.30 pence per share. Simultaneously, the
Board is also paying a special dividend of 0.41 pence per share
(equivalent to GBP0.8 million), making the total dividend in
respect of the year ending 31 March 2020 of GBP5.3 million
equivalent to 83% of total earnings.
The total ordinary and special dividends paid in respect of the
prior year ended 31 March 2019 were 2.30 pence per share and 0.69
pence per share respectively, equivalent to total dividends of
GBP5.9 million and representing 91% of total earnings of 3.27 pence
per share.
Financial stability and capital management
The Group's balance sheet is strong and liquid with total net
assets of GBP28.2 million at the end of the year, including current
assets managed as cash totalling GBP22.3 million. The business
remains cash generative, with net cash inflows from operating
activities after tax of GBP6.5 million for the year (see note 25 to
the financial statements).
The Board's capital policy is to retain minimum capital (being
equivalent to shareholders' funds) within the business broadly
equivalent to twelve months' worth of future estimated operating
expenses (excluding variable remuneration), plus capital assessed
as sufficient to meet regulatory capital requirements and working
capital purposes, and for investing in new opportunities for the
business. To this end, the Group maintains a financial model to
assist it in forecasting future capital requirements over a
three-year cycle under various scenarios and monitors the capital
and liquidity positions of the Group on an ongoing and frequent
basis. The Group has no debt.
Record Currency Management Limited ("RCML") is a BIPRU limited
licence firm authorised and regulated in the UK by the Financial
Conduct Authority ("FCA"), and is a wholly owned subsidiary of
Record plc. Both RCML and the Group submit semi -- annual capital
adequacy returns to the FCA, and held significant surplus capital
resources relative to the regulatory financial resource requirement
throughout the year.
The Board has concluded that the Group is adequately capitalised
both to continue its operations effectively and to meet regulatory
requirements, due to the size and liquidity of balance sheet
resources maintained by the Group.
The Group held regulatory capital resources based on the audited
financial statements as at 31 March (excluding non-controlling
interests), as follows:
Regulatory capital resources (GBPm)
2020 2019
------------------------------ ----- -----
Core Tier 1 capital 28.0 27.3
Deductions: intangible assets (0.4) (0.3)
------------------------------ ----- -----
Regulatory capital resources 27.6 27.0
------------------------------ ----- -----
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 .
Managing the impact of the Coronavirus pandemic
The Group Board, management and Risk Management Committee
constantly monitor emerging risks, assessing the likelihood of
impact on the principal risks faced by the business.
At the time of writing, the Coronavirus pandemic ("covid-19")
has effectively temporarily shut down the world economy as global
leaders fight to stop the spread of the virus through enforced
lockdowns in their respective countries. Although some countries
are beginning to ease restrictions as mortality rates decline, it
remains to be seen whether a second wave of the virus ensues, and
if not, how quickly the global economy returns to pre-covid-19
levels, if at all. The speed and scale of disruption caused by the
pandemic is unprecedented, meaning the risk has fully transitioned
from an emerging risk to a business continuity risk.
Information on the Group's response to the pandemic and the
effect on its business and operations is given in more detail
below.
Review of the impact of covid-19"
Our clients
Record's clients are institutional and of high quality with
strong, long-standing and trusted relationships built over many
years. Record has not lost any clients as a result of the covid-19
pandemic and has maintained strong lines of communication and
service levels throughout the crisis, responding to client requests
in volatile markets and restricted liquidity, and underpinning the
quality of our service offering. A large proportion of our current
client base by assets (90%) is represented by hedging products
which seek to reduce the FX risk associated with our clients'
overseas assets - extreme volatility in times of market stress only
serves to further reinforce the benefit of such risk mitigation
strategies. The quality of our clients is reflected in the business
having not suffered from any unpaid fees for over 20 years through
various market crises and cycles, and we do not anticipate this
changing under the current circumstances.
Our people
Record has successfully transitioned to full remote working
without detriment to our clients or employees. We continue to
closely monitor the well-being and motivation of all of our staff
and to listen and respond to their feedback and requirements.
Planning has begun for the easing of restrictions and how these may
impact the return to 'normal' working conditions in terms of social
distancing, travel, increased office hygiene requirements and other
measures. Record has not seen any employee attrition as a result of
the crisis, has not cut wages and does not anticipate utilising any
of the Government's job retention or loan schemes for
businesses.
Our technology and operations
Prior to the UK Government imposed lockdown, Record's
operational teams had already been split between the disaster
recovery ("DR") site and the Windsor office, and this changed to
full working from home for all employees, including all operational
teams, subsequent to the lockdown measures being introduced.
Throughout these phases full business continuity was maintained.
Remote access systems have been strengthened and over the course of
the lockdown additional IT equipment has been sourced for
individuals to assist with facilitating the required working
environment from home.
Our governance and oversight
Virtual meetings have replaced physical meetings in the office
and broadly follow the same pattern as prior to the crisis,
although the frequency for some meetings has been increased, for
example more regular Audit and Risk Committee meetings to review
risk and weekly Executive Committee catch ups to discuss employee
well-being, market behaviour and other management issues.
Our risk and management reporting framework continues to operate
as usual as do monitoring and oversight tasks operated by the
compliance team.
Our business model
With the exception of those items discussed above, any further
impact of covid-19 on our business model has been limited. Our
costs have not materially increased as a result of the virus and
our balance sheet remains well capitalised and robust. In terms of
revenue, whilst we have not seen and do not anticipate any direct
material outflows as a result of covid-19, the link between some of
our clients' mandates with other markets, such as equity and fixed
income, means our AUME is also affected to a lesser extent to
movements in such markets. This was illustrated by the fall of our
fourth quarter AUME by -$4.5 billion (-7%) linked to market
movements. Conversely, we would expect to see any rebound in such
markets reflected by an increase in our AUME.
Our business has responded well to the changes enforced by the
covid-19 pandemic, with continuity in operational and client
servicing matters, and maintaining a full team without the need for
additional funding or Government assistance. We believe that we are
capable of continuing to operate under current circumstances for
the foreseeable future.
Please see the market review for analysis of the market impact
of the covid-19 pandemic.
Financial statements
Consolidated statement of comprehensive income
Year ended 31 March
2020 2019
Note GBP'000 GBP'000
------------------------------------------- ---- -------- --------
Revenue 4 25,563 24,973
Cost of sales (255) (385)
------------------------------------------- ---- -------- --------
Gross profit 25,308 24,588
Administrative expenses (17,741) (16,704)
Other income or expense 82 (8)
------------------------------------------- ---- -------- --------
Operating profit 5 7,649 7,876
Finance income 146 135
Finance expense (58) (22)
------------------------------------------- ---- -------- --------
Profit before tax 7,737 7,989
Taxation 7 (1,365) (1,559)
------------------------------------------- ---- -------- --------
Profit after tax 6,372 6,430
------------------------------------------- ---- -------- --------
Total comprehensive income for the year 6,372 6,430
------------------------------------------- ---- -------- --------
Profit and total comprehensive income for
the year attributable to
Owners of the parent 6,420 6,430
Non-controlling interests (48) -
------------------------------------------- ---- -------- --------
Profit and total comprehensive income for
the year 6,372 6,430
------------------------------------------- ---- -------- --------
Earnings per share for profit attributable
to the equity holders of the Group during
the year
Basic earnings per share 8 3.26p 3.27p
Diluted earnings per share 8 3.26p 3.25p
------------------------------------------- ---- -------- --------
The notes below are an integral part of these consolidated
financial statements.
Consolidated statement of financial position
As at 31 March
2020 2019
Note GBP'000 GBP'000
-------------------------------------------- ---- -------- --------
Non -- current assets
Intangible assets 11 470 288
Right-of-use assets 12 1,175 -
Property, plant and equipment 13 751 761
Investments 14 2,472 1,112
Total non -- current assets 4,868 2,161
Current assets
Trade and other receivables 16 8,704 7,562
Derivative financial assets 17 193 164
Money market instruments with maturities
> 3 months 18 7,958 10,735
Cash and cash equivalents 18 14,294 12,966
-------------------------------------------- ---- -------- --------
Total current assets 31,149 31,427
-------------------------------------------- ---- -------- --------
Total assets 36,017 33,588
-------------------------------------------- ---- -------- --------
Current liabilities
Trade and other payables 19 (3,009) (2,736)
Corporation tax liabilities 19 (601) (692)
Lease liabilities 12 (544) -
Financial liabilities 20 (2,191) (2,621)
Derivative financial liabilities 17 (610) (109)
-------------------------------------------- ---- -------- --------
Total current liabilities (6,955) (6,158)
-------------------------------------------- ---- -------- --------
Non-current liabilities
Deferred tax liabilities 15 (86) (29)
Provisions (200) -
Lease liabilities 12 (615) -
-------------------------------------------- ---- -------- --------
Total non-current liabilities (901) -
-------------------------------------------- ---- -------- --------
Total net assets 28,161 27,401
-------------------------------------------- ---- -------- --------
Equity
Issued share capital 21 50 50
Share premium account 2,259 2,243
Capital redemption reserve 26 26
Retained earnings 25,694 25,022
-------------------------------------------- ---- -------- --------
Equity attributable to owners of the parent 28,029 27,341
-------------------------------------------- ---- -------- --------
Non-controlling interests 132 60
-------------------------------------------- ---- -------- --------
Total equity 28,161 27,401
-------------------------------------------- ---- -------- --------
Approved by the Board on 18 June 2020
Company registered number: 1927640
The notes below are an integral part of these consolidated
financial statements.
Consolidated statement of changes in equity
Year ended 31 March 2020
Note Called-up Share Capital Retained Equity Non-controlling Total
share premium redemption earnings attributable interests 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 2019 50 2,243 26 25,022 27,341 60 27,401
IFRS 16 opening adjustment 1 - - - (98) (98) - (98)
Profit and total
comprehensive
income for the year - - - 6,420 6,420 (48) 6,372
Dividends paid 9 - - - (5,888) (5,888) - (5,888)
Issue of shares in
subsidiary - - - - - 120 120
Own shares acquired
by EBT - - - (1,020) (1,020) - (1,020)
Release of shares
held by EBT - 16 - 971 987 - 987
Share-based payment
reserve movement - - - 287 287 - 287
-------------------------- ---- --------- -------- ----------- --------- ------------- --------------- -------
Transactions with
shareholders - 16 - (5,650) (5,634) 120 (5,514)
-------------------------- ---- --------- -------- ----------- --------- ------------- --------------- -------
As at 31 March 2020 50 2,259 26 25,694 28,029 132 28,161
-------------------------- ---- --------- -------- ----------- --------- ------------- --------------- -------
Year ended 31 March 2019
Note Called-up Share Capital Retained Equity Non-controlling Total
share premium redemption earnings attributable interests 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 2018 50 2,237 26 24,238 26,551 - 26,551
Profit and total
comprehensive
income for the year - - - 6,430 6,430 - 6,430
Dividends paid 9 - - - (5,517) (5,517) - (5,517)
Issue of shares in
subsidiary - - - - - 60 60
Own shares acquired
by EBT - - - (893) (893) - (893)
Release of shares
held by EBT - 6 - 677 683 - 683
Share-based payment
reserve movement - - - 87 87 - 87
-------------------------- ---- --------- -------- ----------- --------- ------------- --------------- -------
Transactions with
shareholders - 6 - (5,646) (5,640) 60 (5,580)
-------------------------- ---- --------- -------- ----------- --------- ------------- --------------- -------
As at 31 March 2019 50 2,243 26 25,022 27,341 60 27,401
-------------------------- ---- --------- -------- ----------- --------- ------------- --------------- -------
The notes below are an integral part of these consolidated
financial statements.
Consolidated statement of cash flows
Year ended 31 March
2020 2019
Note GBP'000 GBP'000
-------------------------------------------- ---- ------- -------
Net cash inflow from operating activities 25 6,543 7,026
Cash flow from investing activities
Purchase of intangible software (311) (134)
Purchase of property, plant and equipment (243) (72)
Purchase of securities (1,113) -
Sale/(purchase) of money market instruments
with maturity > 3 months 2,777 (537)
Interest received 160 110
-------------------------------------------- ---- ------- -------
Net cash inflow/(outflow) from investing
activities 1,270 (633)
Cash flow from financing activities
Lease repayments (576) -
Subscription for shares in subsidiary 120 40
Purchase of own shares (487) (653)
Dividends paid to equity shareholders 9 (5,888) (5,517)
-------------------------------------------- ---- ------- -------
Cash outflow from financing activities (6,831) (6,130)
-------------------------------------------- ---- ------- -------
Net increase in cash and cash equivalents
in the year 982 263
Effect of exchange rate changes 346 205
Cash and cash equivalents at the beginning
of the year 12,966 12,498
-------------------------------------------- ---- ------- -------
Cash and cash equivalents at the end of the
year 14,294 12,966
-------------------------------------------- ---- ------- -------
Closing cash and cash equivalents consist
of:
Cash 8,004 2,150
Cash equivalents 6,290 10,816
-------------------------------------------- ---- ------- -------
Cash and cash equivalents 18 14,294 12,966
-------------------------------------------- ---- ------- -------
The notes below are an integral part of these consolidated
financial statements.
Company statement of financial position
As at 31 March
2020 2019
Note GBP'000 GBP'000
------------------------------ ---- ------- -------
Non -- current assets
Right-of-use assets 12 1,096 -
Investments 14 3,516 5,567
------------------------------ ---- ------- -------
Total non -- current assets 4,612 5,567
------------------------------ ---- ------- -------
Current assets
Trade and other receivables 142 -
Cash and cash equivalents 18 2,241 3
------------------------------ ---- ------- -------
Total current assets 2,383 3
------------------------------ ---- ------- -------
Total assets 6,995 5,570
------------------------------ ---- ------- -------
Current liabilities
Trade and other payables 19 (10) (55)
Corporation tax liabilities 19 (2) (14)
Lease liabilities (495) -
------------------------------ ---- ------- -------
Total current liabilities (507) (69)
------------------------------ ---- ------- -------
Non-current liabilities
Lease liabilities (584) -
Provisions (200) -
------------------------------ ---- ------- -------
Total non-current liabilities (784) -
------------------------------ ---- ------- -------
Total net assets 5,704 5,501
------------------------------ ---- ------- -------
Equity
Issued share capital 21 50 50
Share premium account 1,809 1,809
Capital redemption reserve 26 26
Retained earnings 3,819 3,616
------------------------------ ---- ------- -------
Total equity 5,704 5,501
------------------------------ ---- ------- -------
The Company's total comprehensive income for the year (which is
principally derived from intra-group dividends) was GBP6,098,249
(2019: GBP6,681,076).
Approved by the Board on 18 June 2020 and signed on its behalf
by:
Company registered number: 1927640
The notes below are an integral part of these consolidated
financial statements.
Company statement of changes in equity
Year ended 31 March 2020
Note Called-up Share premium Capital Retained Total shareholders'
share capital account redemption earnings equity
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ---- -------------- ------------- ----------- --------- -------------------
As at 1 April 2019 50 1,809 26 3,616 5,501
IFRS 16 opening adjustment - - - (91) (91)
Profit and total comprehensive
income for the year - - - 6,098 6,098
Dividends paid 9 - - - (5,888) (5,888)
Share option reserve
movement - - - 84 84
------------------------------- ---- -------------- ------------- ----------- --------- -------------------
Transactions with
shareholders - - - (5,804) (5,804)
------------------------------- ---- -------------- ------------- ----------- --------- -------------------
As at 31 March 2020 50 1,809 26 3,819 5,704
------------------------------- ---- -------------- ------------- ----------- --------- -------------------
Year ended 31 March 2019
Note Called-up Share premium Capital Retained Total shareholders'
share capital account redemption earnings equity
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ---- -------------- ------------- ----------- --------- -------------------
As at 1 April 2018 50 1,809 26 2,312 4,197
Profit and total comprehensive
income for the year - - - 6,681 6,681
Dividends paid 9 - - - (5,517) (5,517)
Share option reserve
movement - - - 140 140
------------------------------- ---- -------------- ------------- ----------- --------- -------------------
Transactions with
shareholders - - - (5,377) (5,377)
------------------------------- ---- -------------- ------------- ----------- --------- -------------------
As at 31 March 2019 50 1,809 26 3,616 5,501
------------------------------- ---- -------------- ------------- ----------- --------- -------------------
The notes below are an integral part of these consolidated
financial statements.
Company statement of cash flows
Year ended 31 March
2020 2019
Note GBP'000 GBP'000
-------------------------------------------- ---- ------- -------
Net cash inflow/(outflow) from operating
activities 25 452 (1,043)
Cash flow from investing activities
Dividends received 6,030 6,600
Investment in subsidiaries (80) (40)
Redemption of seed funds 2,247 -
Interest received 2 1
-------------------------------------------- ---- ------- -------
Net cash inflow from investing activities 8,199 6,561
Cash flow from financing activities
Lease repayments (517) -
Dividends paid to equity shareholders 9 (5,888) (5,517)
-------------------------------------------- ---- ------- -------
Cash outflow from financing activities (6,405) (5,517)
-------------------------------------------- ---- ------- -------
Net increase in cash and cash equivalents
in the year 2,246 1
FX revaluation (8) -
Cash and cash equivalents at the beginning
of the year 3 2
-------------------------------------------- ---- ------- -------
Cash and cash equivalents at the end of the
year 2,241 3
-------------------------------------------- ---- ------- -------
Closing cash and cash equivalents consist
of:
Cash 2,241 3
Cash equivalents - -
-------------------------------------------- ---- ------- -------
Cash and cash equivalents 18 2,241 3
-------------------------------------------- ---- ------- -------
The notes below are an integral part of these consolidated
financial statements.
Notes to the financial statements
For the year ended 31 March 2020
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 provide more clarity to the notes to the financial
statements, accounting policy descriptions appear at the beginning
of the note to which they relate, and are shown in blue 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 IFRS Interpretations Committee ("IFRS IC")
as adopted in the European Union as at 31 March 2020. 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. In arriving at this conclusion, the Directors
have considered in detail the impact of the covid-19 pandemic on
the Group, the market it operates in and its stakeholders. 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
The Group has applied the following standards and amendments for
the first time for their annual reporting period commencing 1 April
2019:
-- IFRS 16 "Leases"
-- Prepayment Features with Negative Compensation - Amendments to IFRS 9
-- Long-term Interests in Associates and Joint Ventures - Amendments to IAS 28
-- Annual Improvements to IFRS Standards 2015 - 2017 Cycle
-- Plan Amendment, Curtailment or Settlement - Amendments to IAS 19
-- Interpretation 23 Uncertainty over Income Tax Treatments.
The Group had to change its accounting policies as a result of
adopting IFRS 16. The impact of the adoption of the leasing
standard, IFRS 16 - "Leases", and the new accounting policy are
disclosed below with further detail provided in note 12. The other
amendments to standards did not have any impact on the Group's
accounting policies and did not require retrospective adjustments
and are not expected to significantly affect the current or future
periods.
IFRS 16 - "Leases"
IFRS 16 - "Leases" is effective for annual periods beginning on
or after 1 January 2019 and replaces IAS 17 - "Leases" and related
interpretations. This introduces a comprehensive model for the
identification of lease arrangements and accounting treatment for
both lessors and lessees, which distinguishes leases and service
contracts on the basis of whether an identified asset is controlled
by a customer. IFRS 16 requires operating leases, where the Group
is the lessee, to be included on the Group's statement of financial
position, recognising a right-of-use ("ROU") asset and a related
lease liability representing the present value obligation to make
lease payments. The ROU asset is assessed for impairment annually
(incorporating any onerous lease assessments) and depreciated on a
straight-line basis, adjusted for any re-measurements of the lease
liability. The lease liability will subsequently be adjusted for
lease payments and interest, as well as the impact of any lease
modifications. IFRS 16 also requires extensive disclosures
detailing the impact of leases on the Group's financial position
and results.
The Group has elected to recognise the cumulative effect of
initially applying the standard to its leases retrospectively on
the date of initial application (1 April 2019), and has not
restated comparative information. The cumulative effect of
initially applying this Standard results in an adjustment to the
opening balance of retained earnings on the date of initial
application.
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
"operating leases" under the principles of IAS 17 - "Leases". These
liabilities were measured at the present value of the remaining
lease payments, discounted using the Group's assumed incremental
borrowing rate as of 1 April 2019. The assumed weighted average
incremental borrowing rate applied to the lease liabilities on 1
April 2019 was 4%.
The Group had three lease agreements relating to its premises in
Windsor, New York and Zürich respectively, which were previously
recognised as operating leases.
For each lease, a right-of-use asset has been recognised at its
carrying amount as if the standard had been applied since the
commencement date of each lease.
There were no onerous lease contracts that would have required
an adjustment to the right-of-use assets at the date of initial
application.
Full disclosure on leases is provided in note 12.
The change in accounting policy affected the following items in
the balance sheet on 1 April 2019:
-- right of use assets - increase by GBP1,560,371;
-- lease liabilities - increase by GBP1,672,994;
-- prepayments - reduce by GBP129,401; and
-- accruals - reduce by GBP144,527.
The net impact on retained earnings on 1 April 2019 was a
decrease of GBP97,497 after adjusting prepayments and accrual
balances pertaining to the leases which were recognised under the
previous accounting policy.
The decrease in retained earnings will be offset over time by a
lower annual Group income statement charge, as the total charge
over the life of each lease is the same as under the previous IAS
17 requirements.
Earnings per share increased by 0.01 pence per share for the
year ended 31 March 2020 as a result of the adoption of IFRS
16.
There has been no other new or amended standard adopted in the
financial year beginning 1 April 2019 which had a material impact
on the Group or Company.
Future accounting developments
The Group did not implement the requirements of any other
standards or interpretations that were in issue but were not
required to be adopted by the Group at the year end date. No other
standards or interpretations have been issued that 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 2020.
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.
An Employee Benefit Trust has been established for the purposes
of satisfying certain share-based awards. As the Group has "de
facto" control over this special purpose entity, the trust is fully
consolidated within the financial statements.
At the end of the financial year, the Group held investments in
two seed funds. These funds are held by Record plc and represent
seed capital investments by the Group.
Significant judgement
The Group uses judgement to determine whether investments in its
seed funds constitute controlling interests in accordance with IFRS
10 - "Consolidated Financial Statements". The Group considers all
relevant facts and circumstances in assessing whether it has
control over specific funds or other entities. This includes
consideration of the extent of the Group's exposure to variability
of returns as an investor and the Group's ability to direct the
relevant activities, through exercising its voting rights as an
investor, or as investment manager. We consider that the Group
exerts such control in cases where (either in isolation or together
with its related parties) it holds a majority of units in the
fund.
If the Group is in a position to be able to control a fund, then
the fund is consolidated within the Group financial statements.
Such funds are consolidated either on a line-by-line basis, or if
the fund 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.
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. In the case of the funds
controlled by the Group, the interests of any external investors in
such funds are recognised as a financial liability as investments
in the fund are not considered to be equity instruments.
The financial statements of subsidiary undertakings, which are
prepared using uniform accounting policies, are coterminous with
those of the Company apart from those of the seed funds which have
accounting reference dates of 30 September. The consolidated
financial statements incorporate the financial performance of the
seed funds in the year ended 31 March 2020 and the financial
position of the seed funds as at 31 March 2020.
The Company is taking advantage of the exemption under the
Companies Act 2006 s408(1) not to present its individual statement
of comprehensive income and related notes that form part of the
financial statements. The Group's total comprehensive income for
the year includes a profit of GBP6,098,249 attributable to the
Company (2019: GBP6,681,076).
All intra -- Group transactions, balances, income, expenses and
dividends are eliminated on consolidation.
c. Foreign currencies
The financial statements are presented in sterling (GBP), which
is the functional currency of the parent company. Foreign currency
transactions are translated into the functional currency of the
parent company using prevailing exchange rates which are updated on
a monthly basis. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the re -- measurement
of monetary items at year -- end exchange rates are recognised in
the statement of comprehensive income under "other income or
expense".
d. Administrative expenses
Administrative expense includes staff costs, marketing and IT
costs, which are recognised on an accruals basis as services are
provided to the Group.
e. 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.
f. 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.
g. 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.
h. 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. From time to time, the Group has bought in
ordinary shares for cancellation. The cost of the buy-ins was taken
directly to retained earnings. The nominal value of the shares was
taken to a capital redemption reserve. 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
In order to prepare the financial statements in accordance with
IFRS, management make certain critical accounting estimates.
Management are also required to exercise judgement in the process
of applying the Group's accounting policies and in determining the
reported amount of certain assets and liabilities.
The estimates and associated assumptions are based on historical
experience and various other factors including expectations of
future events 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. As a consequence 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.
Areas of significant judgement - consolidation of seed funds
Note 1b describes the basis which the Group uses to determine
whether it controls seed funds; further detail on consolidation of
seed funds is provided in note 14.
Sources of estimation uncertainty
Management recognise that the use of estimates is important in
calculating both the fair value of share options offered by the
Group to its employees (see note 22) and deferred tax (see note
15), however the sources of estimation uncertainty do not present a
significant risk of material adjustment to the carrying amounts of
assets or liabilities within the next financial year in either
case.
Calculation of leased assets and liabilities requires the use of
both estimation and judgement. The identification of an appropriate
discount rate to use in the calculation of the lease liability
involves both estimation and judgement. Where the lease's implicit
rate is not readily determinable, an incremental borrowing rate
must be calculated by the Group. The discount rate used has a
direct effect on the size of the lease liability capitalised and
although this has been included as an area where the use of
estimation and judgement in note 12 is important, it is unlikely to
materially impact the Group.
3. 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. Revenue analysed by product is provided in note 4.
4. Revenue
Revenue recognition
Revenue comprises the fair value of the consideration received
or receivable for the provision of currency management services.
Our revenues typically arise from charging management fees or
performance fees and both are accounted for in accordance with IFRS
15 - "Revenue from contracts with customers".
Management fees are recorded on a monthly basis as the
underlying currency management service occurs; there are no other
performance obligations (excluding standard duty of care
requirements). Management fees are calculated as an agreed
percentage of the Assets Under Management Equivalents ("AUME")
denominated in the client's chosen base currency. The percentage
varies depending on the nature of services and the level of AUME.
Management fees are typically invoiced to the customer quarterly
with receivables recognised for unpaid invoices.
The Group is entitled to earn performance fees from some clients
where the performance of the clients' mandates exceeds defined
benchmarks over a set time period, and are recognised when the fee
amount can be estimated reliably and it is highly probable that it
will not be subject to significant reversal.
Performance fee revenues are not considered to be highly
probable until the end of a contractual performance period and
therefore are not recognised until they crystallise, at which time
they are payable by the client and cannot be clawed back. There are
no other performance obligations or services provided which suggest
these have been earned either before or after crystallisation
date.
a) Revenue from contracts with customers
The following table provides a breakdown of revenue from
contracts with customers, with management fees analysed by product.
Other currency services income includes fees from signal hedging
and fiduciary execution.
2020 2019
Revenue by product type GBP'000 GBP'000
-------------------------------------------- ------- -------
Management fees
Passive Hedging 12,026 11,610
Dynamic Hedging 3,995 4,598
Currency for Return 1,982 1,775
Multi-Product 5,130 4,325
-------------------------------------------- ------- -------
Total management fee income 23,133 22,308
-------------------------------------------- ------- -------
Performance fee income 1,819 2,333
Other currency services income 611 332
-------------------------------------------- ------- -------
Total revenue from contracts with customers 25,563 24,973
-------------------------------------------- ------- -------
b) Contract receivables
The payment terms for invoiced revenue vary but are typically 30
days from receipt of invoice. Accrued income is recognised to
account for income earned but not yet invoiced. Accrued income is
the only component of contract assets.
The Group has recognised the following receivables, assets and
liabilities in relation to contracts with customers.
2020 2019
GBP'000 GBP'000
--------------------------------------------- ------- -------
Amount receivable from contracts with
customers 5,192 4,654
Accrued income from contracts with customers 2,264 1,888
--------------------------------------------- ------- -------
Total contract receivables and assets 7,456 6,542
--------------------------------------------- ------- -------
The ageing of contract receivables is provided in note 23.
There are no contract liabilities arising in relation to
contracts with customers.
c) Contract receivables
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.
2020 2019
Revenue by geographical region GBP'000 GBP'000
-------------------------------------- ------- -------
Management and performance fee income
UK 2,328 2,239
US 6,209 6,439
Switzerland 11,377 11,401
Other 5,649 4,894
-------------------------------------- ------- -------
Total revenue 25,563 24,973
-------------------------------------- ------- -------
d) Major clients
During the year ended 31 March 2020, three clients individually
accounted for more than 10% of the Group's revenue. The three
largest clients generated revenues of GBP3.9 million, GBP3.5
million and GBP3.1 million in the year (2019: three largest clients
generated revenues of GBP4.4 million, GBP3.9 million and GBP3.6
million in the year).
5. Operating profit
Operating profit for the year is stated after
charging/(crediting):
2020 2019
GBP'000 GBP'000
------------------------------------------------ ------- -------
Staff costs 12,087 11,574
Depreciation of property, plant and equipment 253 221
Depreciation of leased property 504 -
Operating lease rentals: land and buildings - 604
Amortisation of intangibles 129 74
Auditor fees
Fees payable to the Group's auditor for the
audit of the Company's annual accounts 64 49
Fees payable to the Group's auditor for the
audit of subsidiary undertakings 53 42
Fees payable to the Group's auditor for the
audit of consolidated funds 43 40
------------------------------------------------ ------- -------
Auditor fees total 160 131
Fees payable to the Group's auditor and its
associates for other services:
Audit-related assurance services required
by law or regulation 33 27
Other non-audit services - 61
Loss on forward FX contracts held to hedge
cash flow 509 242
Loss on derivative financial instruments held
by seed funds 323 -
Exchange (gains)/losses on revaluation of
external holding in seed funds (115) (67)
Other exchange (gains)/losses (515) (178)
------------------------------------------------ ------- -------
6. Staff costs
The average number of employees, including Directors, employed
by the Group during the year was:
2020 2019
--------------------- ---- ----
Corporate 8 9
Client relationships 16 16
Investment research 16 15
Operations 24 26
Risk management 5 5
Support 13 14
--------------------- ---- ----
Annual average 82 85
--------------------- ---- ----
The aggregate costs of the above employees, including Directors,
were as follows:
2020 2019
GBP'000 GBP'000
------------------------------- ------- -------
Wages and salaries 9,356 8,900
Social security costs 1,278 1,239
Pension costs 514 468
Other employment benefit costs 939 967
------------------------------- ------- -------
Aggregate staff costs 12,087 11,574
------------------------------- ------- -------
Other employment benefit costs include share -- based payments,
share option costs, and costs relating to the Record plc Share
Incentive Plan.
7. 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:
2020 2019
GBP'000 GBP'000
--------------------------------------------------------- ------- -------
Profit before taxation 7,737 7,989
--------------------------------------------------------- ------- -------
Taxation at the standard rate of tax in the UK
of 19% (2019: 19%) 1,470 1,518
Tax effects of:
Other disallowable expenses and non -- taxable
income 4 16
Capital allowances for the year higher than depreciation (51) (20)
Higher tax rates on subsidiary undertakings 17 10
Adjustments recognised in current year in relation
to the current tax of prior years - 2
Adjustments recognised in current year in relation
to Research and Development claims in respect
of prior years (143) (93)
Other temporary differences 68 126
--------------------------------------------------------- ------- -------
Total tax expense 1,365 1,559
--------------------------------------------------------- ------- -------
The tax expense comprises:
Current tax expense 1,309 1,445
Deferred tax expense 56 114
--------------------------------------------------------- ------- -------
Total tax expense 1,365 1,559
--------------------------------------------------------- ------- -------
The standard rate of UK corporation tax for the year is 19%
(2019: 19%). 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 2020 was 17.6% of
profit before tax (2019: 19.5%).
8. 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.
2020 2019
--------------------------------------------- ----------- -----------
Weighted average number of shares used in
calculation of basic earnings per share 196,679,874 196,655,224
Effect of potential dilutive ordinary shares
- share options 390,156 1,462,554
--------------------------------------------- ----------- -----------
Weighted average number of shares used in
calculation of diluted earnings per share 197,070,030 198,117,778
--------------------------------------------- ----------- -----------
pence pence
--------------------------- ----- -----
Basic earnings per share 3.26 3.27
Diluted earnings per share 3.26 3.25
--------------------------- ----- -----
The potential dilutive shares relate to the share options
granted in respect of the Group's Share Scheme (see note 22). There
were share options in place at the beginning of the year over
12,291,703 shares. During the year 1,691,068 share options were
exercised, and a further 2,640,120 share options lapsed or were
forfeited. The Group granted 3,935,000 share options with a
potentially dilutive effect during the year. Of the 11,895,515
share options in place at the end of the period, 5,913,648 have a
dilutive impact at the year end.
9. 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
2020 totalled GBP5,887,541 (2.99 pence per share) which comprised a
final dividend in respect of the year ended 31 March 2019 of
GBP2,261,970 (1.15 pence per share), a special dividend in respect
of the year ended 31 March 2019 of GBP1,357,182 (0.69 pence per
share) and an interim dividend for the year ended 31 March 2020 of
GBP2,268,389 (1.15 pence per share).
The dividends paid by the Group during the year ended 31 March
2019 totalled GBP5,516,896 (2.80 pence per share) which comprised a
final dividend in respect of the year ended 31 March 2018 of
GBP2,266,379 (1.15 pence per share), a special dividend in respect
of the year ended 31 March 2018 of GBP985,382 (0.50 pence per
share) and an interim dividend for the year ended 31 March 2019 of
GBP2,265,135 (1.15 pence per share).
For the year ended 31 March 2020, a final ordinary dividend of
1.15 pence per share has been proposed and a special dividend of
0.41 pence per share has been declared, totalling GBP2.3 million
and GBP0.8 million respectively.
10. 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 disclosed in note 6 to the accounts
represents contributions payable by the Group to the funds.
11. Intangible assets
Intangible assets are shown at historical cost less accumulated
amortisation and impairment losses. Amortisation is charged to
profit or loss on a straight -- line basis over the estimated
useful lives of the intangible assets unless such lives are
indefinite. Amortisation is included within operating expenses in
the statement of comprehensive income. Intangible assets are
amortised from the date they are available for use. Useful lives
are as follows:
-- Software - 2 to 5 years
Amortisation periods and methods are reviewed annually and
adjusted if appropriate.
The Group's intangible assets comprise both purchased software
and the capitalised cost of software deployment. No internal costs
of software development are capitalised. The carrying amounts can
be analysed as follows:
Software Total
2020 GBP'000 GBP'000
-------------------- -------- -------
Cost
At 1 April 2019 1,592 1,592
Additions 311 311
Disposals - -
-------------------- -------- -------
At 31 March 2020 1,903 1,903
-------------------- -------- -------
Amortisation
At 1 April 2019 1,304 1,304
Charge for the year 129 129
Disposals - -
-------------------- -------- -------
At 31 March 2020 1,433 1,433
-------------------- -------- -------
Net book amounts
At 31 March 2020 470 470
-------------------- -------- -------
At 1 April 2019 288 288
-------------------- -------- -------
Software Total
2019 GBP'000 GBP'000
-------------------- -------- -------
Cost
At 1 April 2018 1,458 1,458
Additions 134 134
Disposals - -
-------------------- -------- -------
At 31 March 2019 1,592 1,592
-------------------- -------- -------
Amortisation
At 1 April 2018 1,230 1,230
Charge for the year 74 74
Disposals - -
-------------------- -------- -------
At 31 March 2019 1,304 1,304
-------------------- -------- -------
Net book amounts
At 31 March 2019 288 288
-------------------- -------- -------
At 1 April 2018 228 228
-------------------- -------- -------
The annual contractual commitment for the maintenance and
support of the above software is GBP187,454, (2019: GBP183,976).
All amortisation charges are included within administrative
expenses.
12. Leases
The Group's lease arrangements consist of business premises
property leases. Rental contracts are typically made for fixed
periods of three to six years but they may have extension options.
Lease terms are negotiated on an individual basis and contain a
wide range of different terms and conditions. The lease agreements
do not impose any covenants, but leased assets cannot be used as
security for borrowing purposes.
Until the financial year ended 31 March 2019, these leases met
the criteria to be classified as operating leases. Payments made
under operating leases (net of any incentives received from the
lessor) were charged to profit or loss on a straight-line basis
over the period of the lease.
From 1 April 2019, following the adoption of IFRS 16 as
described in note 1, leases have been recognised as a right-of-use
asset and a corresponding liability at the date at which the leased
asset is available for use by the Group. Each lease payment is
allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of
the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life and the
lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the lease payments less any lease incentives
receivable.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
Group's incremental borrowing rate is used, being the rate that the
Group would have to pay to borrow the funds necessary to obtain an
asset of similar value in a similar economic environment with
similar terms and conditions. As the Group has no borrowings it has
estimated the incremental borrowing rate based on interest rate
data available in the market, adjusted to reflect Record's
creditworthiness, the leased asset in question and the terms and
conditions of the lease. For those leases which existed prior to
the IFRS 16 transition date on 1 April 2019, a discount rate of 4%
was used in calculating the lease liability on transition.
The leases relevant to the twelve months ended 31 March 2020,
and the comparative period, are as described below.
On 7 September 2016, the Group signed a new lease on premises at
Second and Third Floors, Morgan House, Madeira Walk, Windsor, at an
annual commitment of GBP507,603, expiring 1 September 2022.
On 16 March 2016, the Group signed a lease on premises in New
York City, at an average annual commitment of $125,840. The lease
expired on 31 May 2019.
On 1 June 2017, the Group signed a five year lease on premises
in Zürich, at an annual commitment of CHF 49,680.
Record assesses whether a contract is or contains a lease at the
inception of the contract.
Right-of-use ("ROU") assets
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement date,
less any lease incentives received;
-- any initial direct costs; and
-- an estimate of costs to be incurred to restore the assets to
the condition required by the terms and conditions of the
lease.
Depreciation is calculated on a straight-line basis over the
lease term and included within administration costs (note 5).
Net book value of right-of-use assets
Year ended 31 March 2020 Group Company
GBP'000 GBP'000
---------------------------------------------- -------- --------
Net book value on transition at 1 April 2019 1,560 1,435
Addition 114 114
Depreciation (504) (453)
FX revaluation (5) -
---------------------------------------------- -------- --------
Net book value at 31 March 2020 1,175 1,096
---------------------------------------------- -------- --------
Lease liabilities
At, 31 March 2020, the closing lease liabilities are comprised
as detailed in the table below.
Group Company
GBP'000 GBP'000
------------------------------- -------- --------
Current lease liabilities 544 495
Non-current lease liabilities 615 584
Total lease liabilities 1,159 1,079
------------------------------- -------- --------
Lease payments
At 31 March 2020, the undiscounted operating lease payments on
an annual basis are as follows:
Maturity of lease liability at 31 March 2020
Group Company
GBP'000 GBP'000
------------------------------------------ -------- --------
Within 1 year 568 508
1-2 years 568 508
2-3 years 100 94
After 3 years - -
------------------------------------------ -------- --------
Total lease liability before discounting 1,236 1,110
------------------------------------------ -------- --------
The remainder of the movement in the lease liability relates to
non-cash movements. The lease term is determined as the
non-cancellable period of a lease, together with periods covered by
an option to extend the lease if the Group considers that exercise
of the option is reasonably certain.
Operating leases
Total operating lease commitment under IAS 17 as at 31 March
2020 was GBPnil. The prior year operating lease commitments under
IAS 17 primarily include the agreements for lease contracts for the
Morgan House premises in Windsor (expiring in 2022) with an annual
commitment of GBP507,603, the New York office with an annual
commitment of $125,840 (expired in May 2019) and the Zurich office
with an annual commitment of CHF 49,680 (expiring in 2022).
Up until 31 March 2019, the Group considered the risks and
rewards of ownership of the leased properties, and considered that
they remained with the lessors. Consequently, all property leases
were recognised as operating leases.
The Group had commitments under non -- cancellable operating
leases relating to land and buildings as set out below:
31 March 31 March
2020 2019
GBP'000 GBP'000
--------------------------------- ---------- ---------
Within 1 year - 562
1-5 years - 1,310
After 5 years - -
--------------------------------- ---------- ---------
Total operating lease liability - 1,872
--------------------------------- ---------- ---------
The Group's closing operating lease commitments can be
reconciled to the opening lease liability as detailed in the table
below.
GBP'000
-------------------------------------------------------- --------
Operating lease commitments as at 31 March 2019 1,872
Adjustment for discounting at the lessee's incremental
borrowing rate at date of initial application (199)
Finance lease liability as at 1 April 2019 1,673
-------------------------------------------------------- --------
13. 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 as
follows:
-- Leasehold improvements - period from lease commencement to
the earlier of the lease termination date and the next rent review
date
-- Computer equipment - 2 to 5 years
-- Fixtures and fittings - 4 to 6 years
Residual values, remaining useful economic lives and
depreciation methods are reviewed annually and adjusted if
appropriate. Gains or losses on disposal are included in profit or
loss.
The Group's property, plant and equipment comprise leasehold
improvements, computer equipment and fixtures and fittings. The
carrying amount can be analysed as follows:
Leasehold Computer Fixtures
improvements equipment and fittings Total
2020 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ------------ --------- ------------ -------
Cost
At 1 April 2019 692 711 325 1,728
Additions - 241 2 243
Disposals - - - -
-------------------- ------------ --------- ------------ -------
At 31 March 2020 692 952 327 1,971
-------------------- ------------ --------- ------------ -------
Depreciation
At 1 April 2019 271 484 212 967
Charge for the year 126 89 38 253
Disposals - - - -
-------------------- ------------ --------- ------------ -------
At 31 March 2020 397 573 250 1,220
-------------------- ------------ --------- ------------ -------
Net book amounts
At 31 March 2020 295 379 77 751
-------------------- ------------ --------- ------------ -------
At 1 April 2019 421 227 113 761
-------------------- ------------ --------- ------------ -------
Leasehold Computer Fixtures
improvements equipment and fittings Total
2019 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ------------ --------- ------------ -------
Cost
At 1 April 2018 661 671 324 1,656
Additions 31 40 1 72
Disposals - - - -
-------------------- ------------ --------- ------------ -------
At 31 March 2019 692 711 325 1,728
-------------------- ------------ --------- ------------ -------
Depreciation
At 1 April 2018 150 425 171 746
Charge for the year 121 59 41 221
Disposals - - - -
-------------------- ------------ --------- ------------ -------
At 31 March 2019 271 484 212 967
-------------------- ------------ --------- ------------ -------
Net book amounts
At 31 March 2019 421 227 113 761
-------------------- ------------ --------- ------------ -------
At 1 April 2018 511 246 153 910
-------------------- ------------ --------- ------------ -------
The Group's tangible non-current assets are located
predominantly in the UK.
14. Investments
Group Company
---------------- ----------------
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ------- ------- ------- -------
Investment in subsidiaries
at cost - - 166 86
Capitalised investment
in respect of share-based
payments - - 1,279 1,195
Investment in funds - 1,112 2,071 4,286
Investment in impact bonds 2,472 - - -
--------------------------- ------- ------- ------- -------
Total investments 2,472 1,112 3,516 5,567
--------------------------- ------- ------- ------- -------
Company
Investments in subsidiaries
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.
2020 2019
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 Currency Management (Switzerland)
GmbH 16 16
Trade Record Ltd 120 40
Record Fund Management Limited - -
N P Record Trustees Limited - -
----------------------------------------- ------- -------
Total investment in subsidiaries (at
cost) 166 86
----------------------------------------- ------- -------
Capitalised investment in respect of
share -- based payments
Record Group Services Limited 1,186 1,108
Record Currency Management (US) Inc. 89 85
Record Currency Management (Switzerland)
GmbH 4 2
----------------------------------------- ------- -------
Total capitalised investment in respect
of share -- based payments 1,279 1,195
----------------------------------------- ------- -------
Total investment in subsidiaries 1,445 1,281
----------------------------------------- ------- -------
Particulars of subsidiary undertakings
Name Nature of business
----------------------------- ----------------------------------------
Record Currency Management Currency management services (FCA,
Limited SEC and CFTC registered)
Record Group Services Management services to other Group
Limited undertakings
Record Currency Management US advisory and service company
(US) Inc. (SEC and CFTC registered)
Record Currency Management Swiss advisory and service company
(Switzerland) GmbH
Trade Record Ltd Prize competition allowing subscribers
to trade virtual money across asset
classes
Record Portfolio Management Dormant
Limited
Record Fund Management Dormant
Limited
N P Record Trustees Limited Dormant trust company
----------------------------- ----------------------------------------
The Group's interest in the equity capital of subsidiary
undertakings is 100% of the ordinary share capital in all cases
except for Trade Record Ltd ("Trade Record") in which the Group's
interest is 40% of the ordinary share capital. Record Currency
Management (US) Inc. is incorporated in Delaware (registered
office: Corporation Service Company, 251 Little Falls Drive,
Wilmington, DE 19808) and Record Currency Management (Switzerland)
GmbH is incorporated in Zürich (registered office: Münsterhof 14,
8001 Zürich). Trade Record is registered in England and Wales with
its registered office at 1 Poultry, London EC2R 8JR. Record plc and
all its other subsidiaries are registered in England and Wales,
each with the registered office at Morgan House, Madeira Walk,
Windsor, Berkshire, SL4 1EP, UK.
Investment in Trade Record Ltd ("Trade Record")
Record plc owns 40% of Trade Record alongside two of its
Directors each owning a further 20%. Trade Record was incorporated
in February 2019 and was considered an opportunity with the
potential to create shareholder value and significant
diversification from Record's established currency management
business.
Investment in seed funds
In addition to the subsidiaries listed above, the Company holds
investments in seed funds. These funds are seed investments, which
have various investment objectives and policies and are subject to
the terms and conditions of their offering documentation. The
principal activity of each is to invest capital from investors in a
portfolio of assets in order to provide a return for those
investors.
The seed fund investments are presented within investments in
the Company statement of financial position, and all seed fund
entities are sub-funds of the Record Umbrella Fund, an open-ended
umbrella unit trust authorised in Ireland. Two of the four funds,
Record Currency - FTSE Index Fund and Record Currency - Emerging
Market Currency Fund, were closed in March 2020. The Company's
investment in seed funds is shown in the table below.
Group
Entities are consolidated on a line-by-line basis where the
Group has determined that a controlling interest exists through an
investment holding in the entity, in accordance with IFRS 10 -
"Consolidated Financial Statements". Otherwise, investments in
entities are measured at fair value through profit or loss.
Investment in Trade Record
Record plc in conjunction with two of its Directors, controls
80% of the ordinary share capital, giving the Company rights over
variable returns and the power to affect returns. Therefore the
Company has the ability to control Trade Record, which is
consequently recognised as a subsidiary.
In accordance with IFRS 10, the financial results of Trade
Record are consolidated on a line-by-line basis within the
financial statements of the Group.
Investment in seed funds
The Group has controlled the Record Currency - Strategy
Development Fund and Record - Currency Multi-Strategy Fund
throughout both the year ended 31 March 2020 and the comparative
year. Both funds were consolidated in full, on a line-by-line basis
in the Group's financial statements throughout these periods.
The Group was in control of the Record Currency - FTSE FRB10
Index Fund throughout the comparative year ended 31 March 2019 and
until its closure in March 2020. This fund was consolidated in
full, on a line-by-line basis in the Group's financial statements
until its closure.
Group Company
---------------- ----------------
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------- ------- ------- -------
Investment in funds
Record Currency - FTSE
FRB10 Index Fund - - - 1,162
Record Currency - Emerging
Market Currency Fund - 1,112 - 1,112
Record Currency - Strategy
Development Fund - - 1,181 1,046
Record - Currency Multi-Strategy
Fund - - 890 966
--------------------------------- ------- ------- ------- -------
Total investment in funds - 1,112 2,071 4,286
--------------------------------- ------- ------- ------- -------
The Record Currency - Emerging Market Currency Fund was closed
in March 2020. The Group did not control the Record Currency -
Emerging Market Currency Fund at any point during the year ended 31
March 2020 or the comparative year, and therefore it did not
consolidate this fund in the Group's financial statements.
Investment in impact bonds
In January 2020, the Group invested GBP2,287,241 in impact
bonds; the fair value at the year end was GBP2,472,241 (prior year:
GBPnil).
15. 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
profit or loss nor the taxable profit or loss, is not
recognised.
2020 2019
GBP'000 GBP'000
----------------------------------- ------- -------
Charge to income statement in year (57) (115)
(Liability)/asset brought forward (29) 86
----------------------------------- ------- -------
(Liability) carried forward (86) (29)
----------------------------------- ------- -------
The deferred tax (liability)/asset consists of the tax effect of
temporary differences in respect of:
2020 2019
GBP'000 GBP'000
------------------------------------------------ ------- -------
Deferred tax allowance on unvested share
options 1 6
Excess of taxation allowances over depreciation
on fixed assets (87) (35)
------------------------------------------------ ------- -------
Total (86) (29)
------------------------------------------------ ------- -------
At the year end there were share options not exercised with an
intrinsic value for tax purposes of GBP7,357 (2019: GBP44,534). 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.
16. Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost using the
effective interest method, less loss allowances. The amortised cost
of trade and other receivables is stated at 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.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses ("ECLs") for trade receivables and contract
assets at an amount equal to lifetime ECLs. The ECLs on trade
receivables are calculated based on actual historic credit loss
experience over the preceding 25 years on the total balance of
non-credit impaired trade receivables. Accrued income relates to
accrued management and performance fees earned but not yet
invoiced.
An analysis of the Group's receivables is provided below:
2020 2019
GBP'000 GBP'000
------------------ ------- -------
Trade receivables 5,192 4,654
Accrued income 2,264 1,888
Other receivables 308 108
Prepayments 940 912
------------------ ------- -------
Total 8,704 7,562
------------------ ------- -------
All amounts are short-term. The Directors consider that the
carrying amount of trade and other receivables approximates to
their fair value. The Group has not renegotiated the terms of any
receivables in the year ended 31 March 2020. The Group's trade
receivables are generally short-term and do not contain significant
financing components.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses (ECLs) for trade receivables and contract
assets at an amount equal to lifetime ECLs. The ECLs on trade
receivables are calculated based on actual historic credit loss
experience over the preceding 25 years on the total balance of
non-credit impaired trade receivables. Contract assets relate to
accrued management and performance fees earned but not yet invoiced
and have substantially the same risk characteristics as the trade
receivables. The Group has therefore concluded that the ECLs for
trade receivables are a reasonable approximation of the loss rates
for the contract assets. The Group does not expect to incur any
credit losses and has not recognised any ECLs in the current year
(2019: GBPnil).
17. 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 assets 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 other income or expense.
2020 2019
Derivative financial assets GBP'000 GBP'000
------------------------------------------ ------- -------
Forward foreign exchange contracts held
to hedge non-sterling based assets - 106
Forward foreign exchange contracts held
for trading 178 58
Foreign exchange options held for trading 15 -
------------------------------------------ ------- -------
Total 193 164
------------------------------------------ ------- -------
2020 2019
Derivative financial liabilities GBP'000 GBP'000
---------------------------------------- ------- -------
Forward foreign exchange contracts held
to hedge non-sterling based assets (316) -
Forward foreign exchange contracts held
for trading (294) (109)
---------------------------------------- ------- -------
Total (610) (109)
---------------------------------------- ------- -------
Derivative financial instruments held to hedge non-sterling
based assets
At 31 March 2020 there were outstanding contracts with a
principal value of GBP10,993,268 (31 March 2019: GBP5,940,246) 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 2020. The Group does
not apply hedge accounting.
The net gain or loss on forward foreign exchange contracts held
to hedge non-sterling based assets is as follows:
2020 2019
Derivative financial instruments held to GBP'000 GBP'000
hedge non-sterling based assets
----------------------------------------------- ------- -------
Net loss on forward foreign exchange contracts
at fair value through profit or loss 509 242
----------------------------------------------- ------- -------
Derivative financial instruments held for trading
The Record - Currency Multi -- Strategy Fund and 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. The Record Currency -
FTSE FRB10 Index Fund used forward foreign exchange contracts in
order to achieve a return until its closure in March 2020.
All derivative financial instruments held by the Record -
Currency Multi-Strategy Fund, the Record Currency - Strategy
Development Fund and the Record Currency - FTSE FRB10 Index Fund
were classified as held for trading throughout the period or up
until the date of closure, where relevant.
At 31 March 2020 there were outstanding contracts with a
principal value of GBP23,425,316 (31 March 2019:
GBP24,323,080).
The net gain or loss on derivative financial instruments held
for trading for the year was as follows:
2020 2019
Derivative financial instruments held for GBP'000 GBP'000
trading
----------------------------------------------- ------- -------
Net loss on forward foreign exchange contracts
and foreign exchange options at fair value
through profit or loss 323 -
----------------------------------------------- ------- -------
18. 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.
Group Company
---------------- ----------------
2020 2019 2020 2019
Assets managed as cash GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ------- ------- ------- -------
Bank deposits with maturities
> 3 months 7,958 10,735 - -
Treasury bills with maturities - -
> 3 months - -
------------------------------- ------- ------- ------- -------
Money market instruments with
maturities > 3 months 7,958 10,735 - -
------------------------------- ------- ------- ------- -------
Cash 8,004 2,150 2,241 3
Bank deposits with maturities
<= 3 months 6,290 10,816 - -
------------------------------- ------- ------- ------- -------
Cash and cash equivalents 14,294 12,966 2,241 3
------------------------------- ------- ------- ------- -------
Total assets managed as cash 22,252 23,701 2,241 3
------------------------------- ------- ------- ------- -------
Group Company
---------------- ----------------
2020 2019 2020 2019
Cash and cash equivalents GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------- ------- ------- -------
Cash and cash equivalents -
sterling 10,426 10,624 2,241 3
Cash and cash equivalents -
USD 3,654 2,180 - -
Cash and cash equivalents -
CHF 161 73 - -
Cash and cash equivalents -
other currencies 53 89 - -
-------------------------------- ------- ------- ------- -------
Total cash and cash equivalents 14,294 12,966 2,241 3
-------------------------------- ------- ------- ------- -------
The Group cash and cash equivalents balance incorporates the
cash and cash equivalents held by any fund deemed to be under
control of Record plc (refer to notes 1 and 14 for explanation of
accounting treatment). As at 31 March 2020, the cash and cash
equivalents held by the seed funds over which the Group had control
totalled GBP2,731,819 (31 March 2019: GBP5,107,670) and the money
market instruments with maturities > 3 months held by these
funds were GBP1,599,741 (31 March 2019: GBP675,577). As at 31 March
2020, the cash and cash equivalents held by Trade Record over which
the Group had control was GBP110,130 (31 March 2019: GBP80,000). At
31 March 2020, Trade Record did not hold any money market
instruments with maturities > 3 months (2019: GBPnil).
Details of how the Group manages credit risk are provided in
note 23.
19. 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.
Group Company
---------------- ----------------
2020 2019 2020 2019
Trade and other payables GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------- ------- ------- -------
Trade payables 425 294 - -
Amounts owed to Group undertaking - - 10 55
Other payables 11 4 - -
Other tax and social security 443 257 - -
Accruals 2,130 2,181 - -
---------------------------------- ------- ------- ------- -------
Total 3,009 2,736 10 55
---------------------------------- ------- ------- ------- -------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
Group Company
---------------- ----------------
2020 2019 2020 2019
Current tax liabilities GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------- ------- ------- -------
Corporation tax 601 692 2 14
------------------------ ------- ------- ------- -------
20. Financial liabilities
Record plc has made investments in a number of seed funds where
it is in a position to be able to control those funds by virtue of
the size of its holding. When Record plc is not the only investor
in such funds and the external investment instrument does not meet
the definition of an equity instrument under IAS 32 then the
instrument is classified as a financial liability. The financial
liabilities are measured at cost plus movement in value of the
third-party investment in the fund.
Record has seeded four funds which were active during the year
ended 31 March 2020. Both the Record Currency - FTSE FRB10 Index
Fund and the Record Currency - Emerging Market Currency Fund were
closed in March 2020.
The Record - Currency Multi-Strategy Fund and the Record
Currency - Strategy Development Fund were considered to be under
control of the Group as the combined holding of Record plc and its
Directors constituted a majority interest throughout the current
and prior years.
The mark-to-market value of units held by investors in these
funds other than Record plc are shown as financial liabilities in
the Group financial statements, in accordance with IFRS.
Mark-to-market value of external holding in seed funds
consolidated into the accounts of the Record Group
2020 2019
GBP'000 GBP'000
---------------------------------------- ------- -------
Record Currency - FTSE FRB10 Index Fund - 479
Record - Currency Multi-Strategy Fund 2,191 2,142
Record Currency - Strategy Development
Fund - -
---------------------------------------- ------- -------
Total financial liabilities 2,191 2,621
---------------------------------------- ------- -------
The financial liabilities relate only to the fair value of the
external investors' holding in the seed funds, and are in no sense
debt.
21. Issued 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.
2020 2019
-------------------- --------------------
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 50 199,054,325 50 199,054,325
------------------------------- ------- ----------- ------- -----------
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
2018 2,393,432
Adjustment for net purchases by EBT 592,604
--------------------------------------------- ---------
Record plc shares held by EBT as at 31 March
2019 2,986,036
Adjustment for net purchases by EBT 233,351
--------------------------------------------- ---------
Record plc shares held by EBT as at 31 March
2020 3,219,387
--------------------------------------------- ---------
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 22.
22. Share-based payments
During the year ended 31 March 2020 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 have been
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 allocated to the profit share
pool between 25% and 35% of operating profits. 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 GBP838,483 (2019:
GBP804,422). 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.
All shares which are the subject of share awards vest
immediately and are transferred to a nominee, allowing the
employee, as beneficial owner to retain full rights in respect of
the shares purchased. Shares awarded under the Group Profit Share
Scheme are subject to restrictions over subsequent sale and
transfer and these restrictions are automatically lifted over one
third on each anniversary of the Profit Share Payment date for the
next three years. In the meantime, these shares cannot be sold,
transferred or otherwise disposed of without the consent of the
Remuneration Committee.
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.
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 including
any market or performance conditions, and using quoted share
prices.
The Record plc Share Scheme allows deferred share awards to be
granted to employees and Directors in the Record Group. Part 1 of
the scheme allows the grant of tax-unapproved ("Unapproved")
options to employees and Directors and Part 2 allows the grant of
HMRC tax-approved ("Approved") options to employees and Directors.
Each participant may be granted Approved options over shares with a
total market value of up to GBP30,000 on the date of grant. There
is no such limit on the value of grant for Unapproved options,
which have historically been granted with a market value exercise
price in the same way as for the Approved options.
Options over an aggregate of 3,935,000 shares were granted under
the Share Scheme during the year (2019: 935,000), which were all
granted as Unapproved options (2019: 370,000 granted as Unapproved
options and 565,000 as Approved options). All options were granted
with an exercise price per share equal to the share price
prevailing at the time of grant.
The 1,985,000 Unapproved options issued to employees on 21
August 2019 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 1,950,000 Unapproved options issued to employees on 18 March
2020 each become exercisable 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 fair value of the services provided by employees has been
calculated indirectly by reference to the fair value of the equity
instruments granted. Fair value amounts for the options granted in
the year ended 31 March 2020, and for which a charge to profit or
loss was made in the year, were determined using a Black-Scholes
option-pricing method and the following assumptions:
Weighted average
Model input value
---------------------------- ----------------
Share price 31.1p
Exercise price 31.1p
Expected volatility 34%
Option life 4 years
Risk-free interest rate (%) 0.65%
---------------------------- ----------------
Expected volatility is based on historical volatility.
The Group share -- based payment expense in respect of the Share
Scheme was GBP83,799 for the year ended 31 March 2020 (2019:
GBP140,236).
Outstanding share options
At 31 March 2020, the total number of ordinary shares of 0.025p
outstanding under Record plc share compensation schemes was
11,895,515 (2019: 12,291,703). These deferred share awards and
options are over issued shares, a proportion of which are hedged by
shares held in an EBT. Details of outstanding share options awarded
to employees are set out below:
At 1 April Lapsed/ At 31 Earliest Latest Exercise
March
Date of grant 2019 Granted Exercised forfeited 2020 vesting vesting price
date date
-------------- ---------- --------- ----------- ----------- ---------- -------- -------- ----------
18/11/13 116,667 - (116,667) - - - - GBP0.3000
26/11/14 720,000 - - (720,000) - - - GBP0.3586
24/03/15 114,000 - (114,000) - - - - GBP0.3450
24/03/15 334,750 - (334,750) - - - - GBP0.3450
01/12/15 1,200,000 - - (600,000) 600,000 01/12/20 01/12/20 GBP0.2888
27/01/16 562,500 - (456,250) - 106,250 27/01/20 27/01/20 GBP0.2450
27/01/16 657,597 - (321,901) (91,632) 244,064 27/01/20 27/01/20 GBP0.2450
27/01/16 218,334 - - (109,167) 109,167 27/01/21 27/01/21 GBP0.2450
27/01/16 48,334 - - (24,167) 24,167 27/01/21 27/01/21 GBP0.2450
30/11/16 288,574 - - - 288,574 30/11/20 30/11/20 GBP0.34072
30/11/16 1,042,500 - (347,500) - 695,000 30/11/19 30/11/20 GBP0.34072
30/11/16 2,200,000 - - (733,332) 1,466,668 30/11/20 30/11/21 GBP0.34072
31/01/17 78,947 - - (78,947) - - - GBP0.3800
26/01/18 1,461,500 - - (151,500) 1,310,000 26/01/22 26/01/22 GBP0.4350
26/01/18 328,000 - - (91,375) 236,625 26/01/20 26/01/22 GBP0.4350
26/01/18 52,000 - - - 52,000 26/01/21 26/01/23 GBP0.4350
26/01/18 1,933,000 - - - 1,933,000 26/01/21 26/01/23 GBP0.4350
29/03/19 565,000 - - (40,000) 525,000 29/03/23 29/03/23 GBP0.2830
29/03/19 370,000 - - - 370,000 29/03/20 29/03/23 GBP0.2830
21/08/19 - 1,985,000 - - 1,985,000 21/08/22 21/08/24 GBP0.3110
18/03/20 - 1,950,000 - - 1,950,000 18/03/21 18/03/24 GBP0.28902
-------------- ---------- --------- ----------- ----------- ---------- -------- -------- ----------
Total options 12,291,703 3,935,000 (1,691,068) (2,640,120) 11,895,515
-------------- ---------- --------- ----------- ----------- ---------- -------- -------- ----------
Weighted GBP0.35 GBP0.30 GBP0.30 GBP0.33 GBP0.34
average
exercise
price of
options
-------------- ---------- --------- ----------- ----------- ---------- -------- -------- ----------
During the year 1,691,068 options were exercised. The weighted
average share price at date of exercise was GBP0.35. At 31 March
2020 a total of 869,189 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
2020 2019
------------------------------------------------ --------- ---------
Record plc Group Profit Share Scheme (interest
in restricted share awards)
Leslie Hill (appointed CEO on 13 February 2020) 613,458 802,837
James Wood -- Collins (stepped down as CEO
on 13 February 2020) - 318,832
Bob Noyen 311,296 318,832
Steve Cullen 142,648 264,286
------------------------------------------------ --------- ---------
Record plc Share Scheme (interest in unvested
share options)
Leslie Hill (appointed CEO on 13 February 2020) 1,405,001 1,406,667
James Wood -- Collins (stepped down as CEO
on 13 February 2020) 2,425,001 2,426,667
Bob Noyen 1,405,001 1,406,667
Steve Cullen 935,000 1,131,667
------------------------------------------------ --------- ---------
Performance measures
Performance conditions attached to all options granted to Board
Directors differ to those granted for all other staff. All
Executive Director option awards are subject to a performance
condition and vest on each of the third, fourth and fifth
anniversaries of the date of grant subject to an earnings per share
("EPS") hurdle linked to the annualised EPS growth for the
respective three, four and five-year periods from grant. Vesting is
on a stepped basis, with 25% of each tranche vesting if EPS growth
over the relevant period is at least RPI plus 4% per annum,
increasing through 50%, 75% and with 100% vesting if EPS growth
exceeds RPI plus 13%, as shown in the table below. Options awarded
subject to EPS performance conditions are valued using a
Black-Scholes model, adjusted for the impact of the performance
conditions.
Percentage of
shares subject
to the award
Record's average EPS growth which vest
-------------------------------------- ---------------
>RPI growth + 13% 100%
>RPI growth + 10%, =<RPI growth + 13% 75%
>RPI growth + 7%, =<RPI growth + 10% 50%
>RPI growth + 4%, =<RPI growth + 7% 25%
=<RPI growth + 4% 0%
-------------------------------------- ---------------
Approved options issued to all other staff during the year and
the prior year were not subject to a Group performance measure.
Approved options issued to all other staff prior to 1 April 2017
were subject to performance measures linked to the Group's Total
Shareholder Return ("TSR") and vested on the fourth anniversary of
the date of grant, subject to these measures. At vesting date, a
percentage of the total options granted could 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 were valued
using a Black-Scholes model. The performance target table is given
below:
Percentage of
shares subject
Percentage by which Record's TSR is below the to the award
median TSR performance of the index which vest
---------------------------------------------------- ---------------
Equal to or above the median TSR performance 100%
Equal to or above 75% of the median TSR performance 75%
Equal to or above 50% of the median TSR performance 50%
Below 50% of the median TSR performance 0%
---------------------------------------------------- ---------------
Unapproved options issued to all other staff vest in four equal
tranches on the first, second, third and fourth anniversaries of
the date of grant, subject to the employee being employed with the
Group at the relevant vesting date and to the extent personal
performance conditions have been satisfied.
Clawback provisions
In addition to the performance measures above, both Approved and
Unapproved options granted to Executive Directors under the Share
Scheme are subject to clawback provisions. These provisions allow
the Remuneration Committee to adjust the number of shares that may
be, or were, acquired to be decreased if the Committee considers
that either a material breach of contract has arisen or in respect
of retrospective amendments required to calculations of the Group's
performance upon which vesting calculations were originally based.
The clawback provisions allow the Group to take various steps until
the clawback obligation is satisfied, including reduction of future
share option awards, transfer of shares back to the Group for nil
consideration, reduction of future payments under the Group Profit
Share Scheme or payment of sales proceeds back to the Group.
c. The Record plc Share Incentive Plan
The Group operates the Record plc Share Incentive Plan ("SIP"),
to encourage more widespread ownership of Record plc shares by
employees. The SIP is a tax -- approved scheme offering attractive
tax savings for employees retaining their shares in the scheme over
the medium to long term.
As an incentive to employees, the Group matches every two shares
bought by employees with a free matching share. During the year,
the Group awarded 54,935 free shares (2019: 66,672 free shares) to
employees. The expense charged in respect of the SIP was GBP17,058
in the year ended 31 March 2020 (2019: GBP22,200).
There are no restrictions over shares issued under the Record
Share Incentive Plan.
23. 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, accrued
income, 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, interest rate
risk and concentration 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, cash and cash equivalents, 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.
Market risk is not considered to have a material impact on
financial instruments.
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 impact of covid-19
The quality of our clients and banking counterparties is
reflected in the business having not suffered from any credit
default for over 20 years through various market crises and cycles,
and we do not anticipate this changing under the current
circumstances.
The Group's maximum exposure to credit risk is as follows:
2020 2019
Financial assets at 31 March GBP'000 GBP'000
----------------------------------------- ------- -------
Trade receivables 5,192 4,654
Accrued income 2,264 1,888
Other receivables 308 108
Derivative financial assets 193 164
Money market instruments with maturities
> 3 months 7,958 10,735
Cash and cash equivalents 14,294 12,966
----------------------------------------- ------- -------
Total financial assets 30,209 30,515
----------------------------------------- ------- -------
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:
Carrying Neither 0-3 months More than
amount impaired past due 3 months
nor past past due
due
At 31 March 2020 GBP'000 GBP'000 GBP'000 GBP'000
------------------ -------- --------- ---------- ---------
Trade receivables 5,192 5,041 5 146
Accrued income 2,264 2,264 - -
------------------ -------- --------- ---------- ---------
Total 7,456 7,305 5 146
------------------ -------- --------- ---------- ---------
98% 0% 2%
------------------ -------- --------- ---------- ---------
Carrying Neither 0-3 months More than
amount impaired past due 3 months
nor past past due
due
At 31 March 2019 GBP'000 GBP'000 GBP'000 GBP'000
------------------ -------- --------- ---------- ---------
Trade receivables 4,654 4,369 285 -
Accrued income 1,888 1,888 - -
------------------ -------- --------- ---------- ---------
Total 6,542 6,257 285 -
------------------ -------- --------- ---------- ---------
96% 4% 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
past due not being provided for unless individual circumstances
indicate that a debt is impaired.
Trade receivables are made up of 62 debtors' balances (2019:
57). The largest individual debtor corresponds to 15% of the total
balance (2019: 19%). Debtor days, based on the generally accepted
calculation of debtor days, is 74 days (2019: 68 days). This
reflects the quarterly billing cycle used by the Group for the vast
majority of its fees. As at 31 March 2020, 2% of debt was overdue
(2019: 4%). 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 29 days (2019: 21 days).
The impact of covid-19 has been considered, and management
believe that the Group's ability to meet its obligations is
unaffected.
Contractual maturity analysis for financial liabilities:
Due or
due Due between Due between
in less
Carrying than 1 and 3 months
amount 1 month 3 months and 1 year
At 31 March 2020 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- ------- ----------- -----------
Trade payables 425 425 - -
Accruals 2,130 67 1,793 270
Derivative financial liabilities 610 148 462 -
--------------------------------- -------- ------- ----------- -----------
Total 3,165 640 2,255 270
--------------------------------- -------- ------- ----------- -----------
Due or
due Due between Due between
in less
Carrying than 1 and 3 months
amount 1 month 3 months and 1 year
At 31 March 2019 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- ------- ----------- -----------
Trade payables 294 294 - -
Accruals 2,181 40 1,041 1,100
Derivative financial liabilities 109 33 76 -
--------------------------------- -------- ------- ----------- -----------
Total 2,584 367 1,117 1,100
--------------------------------- -------- ------- ----------- -----------
Interest rate risk
Interest rate risk is the risk that the value of a financial
instrument or cash flows associated with the instrument will
fluctuate due to changes in market interest rates. Interest rate
risk arises from interest-bearing financial assets and liabilities
held by the Group. Interest-bearing assets comprise money market
instruments and cash and cash equivalents which are considered to
be short -- term liquid assets. It is the Group's policy to settle
trade payables within the credit terms allowed and the Group does
not therefore incur interest on overdue balances.
A sensitivity analysis has not been disclosed for the impact of
interest rate changes as any reasonable range of change in interest
rate would not directly have a material impact on profit or
equity.
Interest rate profiles
No
Fixed rate Floating interest Total
rate rate
At 31 March 2020 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ---------- -------- -------- -------
Financial assets
Trade receivables - - 5,191 5,191
Accrued income - - 2,264 2,264
Other receivables - - 308 308
Derivative financial assets at
fair value through profit or loss - - 193 193
Money market instruments with
maturities > 3 months 7,958 - - 7,958
Cash and cash equivalents 6,271 8,023 - 14,294
----------------------------------- ---------- -------- -------- -------
Total financial assets 14,229 8,023 7,956 30,208
----------------------------------- ---------- -------- -------- -------
Financial liabilities
Trade payables - - (425) (425)
Accruals - - (2,130) (2,130)
Derivative financial liabilities
at fair value through profit or
loss - - (610) (610)
Financial liabilities - - (2,191) (2,191)
----------------------------------- ---------- -------- -------- -------
Total financial liabilities - - (5,356) (5,356)
----------------------------------- ---------- -------- -------- -------
No
Fixed rate Floating interest Total
rate rate
At 31 March 2019 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ---------- -------- -------- -------
Financial assets
Trade receivables - - 4,654 4,654
Accrued income - - 1,888 1,888
Other receivables - - 108 108
Derivative financial assets at
fair value through profit or loss - - 164 164
Money market instruments with
maturities > 3 months 10,735 - - 10,735
Cash and cash equivalents 10,816 2,150 - 12,966
----------------------------------- ---------- -------- -------- -------
Total financial assets 21,551 2,150 6,814 30,515
----------------------------------- ---------- -------- -------- -------
Financial liabilities
Trade payables - - (294) (294)
Accruals - - (2,181) (2,181)
Derivative financial liabilities
at fair value through profit or
loss - - (109) (109)
Financial liabilities - - (2,621) (2,621)
----------------------------------- ---------- -------- -------- -------
Total financial liabilities - - (5,205) (5,205)
----------------------------------- ---------- -------- -------- -------
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 revenue
invoices 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. The principal
currencies giving rise to this risk are the US dollar, the Swiss
franc, the euro and the Canadian dollar.
During the year ended 31 March 2020, the Group invoiced the
following amounts in currencies other than sterling:
Local Value in
currency reporting
value currency
'000 GBP'000
------------------------ -------- ---------
Swiss franc (CHF) 14,416 11,533
US dollar (USD) 9,217 7,274
Euro (EUR) 3,028 2,644
Australian dollar (AUD) 1,520 804
Canadian dollar (CAD) 742 436
Swedish krona (SEK) 1,476 101
Singapore dollar (SGD) 25 14
22,806
------------------------ -------- ---------
The value of revenues for the year ended 31 March 2020 that were
denominated in currencies other than sterling was GBP22.8 million
(31 March 2019: GBP21.4 million).
Record's policy is to reduce the risk associated with the
Group's revenues 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.
The cash denominated in currencies other than sterling (refer to
note 18), is covered by the Group's hedging process, therefore the
Directors consider that the foreign currency risk on cash balances
is not material.
Foreign currency risk - sensitivity analysis
The Group has considered the sensitivity to exchange rate
movements by considering the impact on those revenues, costs,
assets and liabilities denominated in foreign currencies as
experienced in the given period.
Impact on profit
after tax Impact on total
for the year ended equity
31 March as at 31 March
--------------------- -----------------
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ---------- --------- -------- -------
Sterling weakening by 10% against
the dollar 334 346 334 346
Sterling strengthening by 10%
against the dollar (334) (346) (334) (346)
Sterling weakening by 10% against
the Swiss franc 622 565 622 565
Sterling strengthening by 10%
against the Swiss franc (622) (565) (622) (565)
---------------------------------- ---------- --------- -------- -------
Sterling/US dollar exchange rate
The impact of a change of 10% has been selected as this is
considered reasonable given the current level of exchange rates and
the volatility observed on a historical basis and market
expectations for future movement. When applied to the average
sterling/USD exchange rate of GBP1 = $1.27 this would result in
sterling weakening to GBP1 = $1.15 and sterling strengthening to
GBP1 = $1.41.
Sterling/Swiss franc exchange rate
The impact of a change of 10% has been selected as this is
considered reasonable given the current level of exchange rates and
the volatility observed on a historical basis and market
expectations for future movement. When applied to the average
sterling/CHF exchange rate of GBP1 = CHF 1.25 this would result in
sterling weakening to GBP1 = CHF 1.14 and sterling strengthening to
GBP1 = CHF 1.39.
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.
Concentration risk
The Group is exposed to concentration risk in respect of
product, client type and geographical location, which could lead to
over-reliance on anyone category of revenue. Note 4 provides detail
on clients contributing greater than 10% of revenue.
Concentration risk - sensitivity analysis
The Group has considered the impact of losing the Group's
largest client, assuming that only variable remuneration costs can
be reduced in the short term.
Impact on profit
after tax Impact on total
for the year ended equity
31 March as at 31 March
--------------------- -----------------
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ---------- --------- -------- -------
Loss of largest client 2,214 2,490 2,214 2,490
----------------------- ---------- --------- -------- -------
As part of the Group's ICAAP process, several more severe
scenarios are considered.
24. 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:
2020 Level Level Level
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ------- ------- ------- -------
Financial assets at fair value
through profit or loss
Impact bonds 2,472 2,472 - -
Forward foreign exchange contracts
used by seed funds 178 - 178 -
Foreign exchange options used
by seed funds 15 - 15 -
Financial liabilities at fair
value through profit or loss
Forward foreign exchange contracts
used for hedging (316) - (316) -
Forward foreign exchange contracts
used by seed funds (294) - (294) -
Total 2,055 2,472 (417) -
----------------------------------- ------- ------- ------- -------
2019 Level Level Level
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ------- ------- ------- -------
Financial assets at fair value through
profit or loss
Investments in funds 1,112 1,112 - -
Forward foreign exchange contracts used
for hedging 106 - 106 -
Forward foreign exchange contracts used
for seed funds 58 - 58 -
Financial liabilities at fair value
through profit or loss
Forward foreign exchange contracts used
for hedging (109) - (109) -
---------------------------------------- ------- ------- ------- -------
Total 1,167 1,112 55 -
---------------------------------------- ------- ------- ------- -------
There have been no transfers between levels in the reporting
period (2019: none).
Basis for classification of financial instruments classified as
level 1 within the fair value hierarchy
Impact bonds are classified as level 1. These bonds are valued
using the market price and coupon rate.
Basis for classification of financial instruments classified as
level 2 within the fair value hierarchy
Forward foreign exchange contracts and options are both
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
Note Assets Financial Assets Liabilities
at amortised liabilities at fair at fair
cost measured value through value through
at amortised profit profit
cost or loss or loss
At 31 March 2020 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ---- ------------- ------------- -------------- --------------
Impact bonds 14 - - 2,472 -
Trade and other receivables (excludes
prepayments) 16 7,764 - - -
Money market instruments with
maturities > 3 months 18 7,958 - - -
Cash and cash equivalents 18 14,294 - - -
Derivative financial assets at
fair value through profit or
loss 17 - - 193 -
Trade payables 19 - (425) - -
Accruals 19 - (2,130) - -
Derivative financial liabilities
at fair value through profit
or loss 17 - - - (610)
-------------------------------------- ---- ------------- ------------- -------------- --------------
Total 30,016 (2,555) 2,665 (610)
-------------------------------------- ---- ------------- ------------- -------------- --------------
Note Assets Financial Assets Liabilities
at amortised liabilities at fair at fair
cost measured value value through
at amortised through profit
cost profit or loss
or loss
At 31 March 2019 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ---- ------------- ------------- -------- --------------
Trade and other receivables (excludes
prepayments) 16 6,650 - - -
Money market instruments with
maturities > 3 months 18 10,735 - - -
Cash and cash equivalents 18 12,966 - - -
Derivative financial assets at
fair value through profit or
loss 17 - - 164 -
Trade payables 19 - (294) - -
Accruals 19 - (2,181) - -
Derivative financial liabilities
at fair value through profit
or loss 17 - - - (109)
-------------------------------------- ---- ------------- ------------- -------- --------------
Total 30,351 (2,475) 164 (109)
-------------------------------------- ---- ------------- ------------- -------- --------------
25. 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.
2020 2019
GBP'000 GBP'000
-------------------------------------------------- ------- -------
Operating profit 7,649 7,876
Adjustments for non-cash movements:
Depreciation of right-of-use assets 504 -
Depreciation of property, plant and equipment 253 221
Amortisation of intangible assets 129 74
Net release of shares previously held by EBT 452 443
Share-based payments 286 87
Other non-cash movements (710) (172)
-------------------------------------------------- ------- -------
8,563 8,529
-------------------------------------------------- ------- -------
Changes in working capital
Increase in receivables (1,281) (772)
Increase in payables 618 106
(Increase)/decrease in other financial assets (30) 102
Increase in other financial liabilities 72 234
-------------------------------------------------- ------- -------
Cash inflow from operating activities 7,942 8,199
Interest paid - (22)
Corporation taxes paid (1,399) (1,151)
-------------------------------------------------- ------- -------
Net cash inflow from operating activities 6,543 7,026
-------------------------------------------------- ------- -------
Company
2020 2019
GBP'000 GBP'000
---------------------------------------------------- ------- -------
Operating profit 125 99
Adjustment for:
Depreciation of right-of-use assets 453 -
Loss/(gain) on investments 25 (26)
Other (162) (73)
Changes in working capital
Increase in receivables (271) -
Increase/(decrease) in payables 299 (1,038)
---------------------------------------------------- ------- -------
Cash inflow/(outflow) from operating activities 469 (1,038)
Corporation taxes paid (17) (5)
---------------------------------------------------- ------- -------
Net cash inflow/(outflow) from operating activities 452 (1,043)
---------------------------------------------------- ------- -------
26. 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 14,
which includes a description of the nature of their business.
2020 2019
GBP'000 GBP'000
----------------------------------------- ------- -------
Amounts due to subsidiaries 132 (55)
Net dividends received from subsidiaries 6,030 6,600
----------------------------------------- ------- -------
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 (2019:
GBPnil). No expense has been recognised during the year in respect
of bad or doubtful debts due from related parties.
Investment in Trade Record
In March 2019, Record plc subscribed GBP40,000 for 40% of the
ordinary share capital of Trade Record. In May 2019, Record plc
invested a further GBP80,000 in Trade Record in a subsequent
fundraising round.
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
2020 2019
GBP'000 GBP'000
-------------------------------- ------- -------
Short -- term employee benefits 5,627 5,411
Post -- employment benefits 242 204
Share -- based payments 909 889
-------------------------------- ------- -------
Total 6,778 6,504
-------------------------------- ------- -------
Key management personnel dividends
The dividends paid to key management personnel in the year ended
31 March 2020 totalled GBP3,113,776 (2019: GBP2,981,053).
Directors' remuneration
2020 2019
GBP'000 GBP'000
-------------------------------------------- ------- -------
Emoluments (excluding pension contribution) 2,328 2,421
Pension contribution (including payments
made in lieu of pension contributions) 163 165
-------------------------------------------- ------- -------
Total 2,491 2,586
-------------------------------------------- ------- -------
During the year, one Director of the Company (2019: one)
participated in the Group Personal Pension Plan, a defined
contribution scheme.
Transactions with Trade Record Ltd
In March 2019, Record plc Directors Leslie Hill and Bob Noyen
each subscribed GBP20,000 for 20% of the ordinary share capital of
Trade Record. In May 2019, Record plc Directors Leslie Hill and Bob
Noyen each invested a further GBP40,000 in Trade Record in a
subsequent fundraising round.
The Directors of Trade Record are Leslie Hill, Director of
Record plc, and Rebecca Venis, an existing employee of one of
Record's subsidiary companies and who also owns 20% of the ordinary
share capital of Trade Record.
Transactions with seed 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 seed 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 - FTSE FRB10 Index Fund, Record Currency -
Strategy Development Fund and Record - Currency Multi-Strategy Fund
are all related parties on this basis.
The only transaction between the Company and these funds during
the year was a redemption of GBP1,071,306 of the Record Currency -
FTSE FRB10 Index Fund on its closure.
During the year, Record plc Director Leslie Hill redeemed
GBP100,000 from the Record - Currency Multi-Strategy Fund.
27. 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:
2020 2019
GBPm GBPm
------------------------ ---- ----
Regulatory capital 9.4 9.3
Other operating capital 16.5 13.7
------------------------ ---- ----
Operating capital 25.9 23.0
Seed capital 2.1 4.3
------------------------ ---- ----
Total capital 28.0 27.3
------------------------ ---- ----
Operating capital is intended to cover the regulatory capital
requirement plus capital required for day-to-day operational
purposes and other investment purposes. The Directors consider that
the other operating capital significantly exceeds the actual day to
day operational requirements.
Seed capital is the capital deployed to support the growth of
new funds. Seed capital is limited to 25% of the Group's total
capital.
For regulatory capital purposes, Record plc is subject to
consolidated financial supervision by the Financial Conduct
Authority ("FCA"). Our regulatory capital requirements are in
accordance with FCA rules and consistent with the Capital
Requirements Directive. Our financial resources have exceeded our
financial resource requirements (regulatory capital requirements)
at all times during the year. Further information is provided in
the Financial review.
28. Ultimate controlling party
As at 31 March 2020 the Company had no ultimate controlling
party, nor at 31 March 2019.
29. Post reporting date events
No adjusting or significant non -- adjusting events have
occurred between the reporting date and the date of
authorisation.
30. Statutory Accounts
This statement was approved by the Board on 18 June 2020. The
financial information set out above does not constitute the
Company's statutory accounts.
The statutory accounts for the financial year ended 31 March
2019 have been delivered to the Registrar of Companies, and those
for the year ended in 31 March 2020 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.
The information contained within this announcement is deemed by
the Group to constitute inside information as stipulated under the
Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the
publication of this announcement via Regulatory Information Service
("RIS"), this inside information is now considered to be in the
public domain.
[1] As a currency manager Record manages only the impact of
foreign exchange and not the underlying assets, therefore its
"assets under management" are notional rather than tangible. To
distinguish this from the AUM of conventional asset managers,
Record uses the concept of Assets Under Management Equivalents
("AUME") and by convention this is quoted in US dollars.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FFFVIRLITLII
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