POLAR CAPITAL HOLDINGS PLC Results Presentation June 2007
Contents • Overview of Polar Capital • Asset flows and Performance • Summary of Financial Information • Strategy for Growth • Appendix 1 POLAR CAPITAL HOLDINGS PLC
Introduction Mark Kary – Chief Executive Mark joined Polar Capital in April 2005 as Chief Executive Officer. He began his career in finance at Chemical Bank in 1982 before joining Morgan Stanley’s UHNW Private Wealth Management Group in 1986 where he advised UK and European family offices, charities and endowments on asset allocation and investments. From 2002, he was the Managing Director in charge of Morgan Stanley’s Northern European UHNW business. Mark was educated at Oxford. John Mansell – Chief Operating Officer John joined Polar Capital in December 2000 as a director. He is responsible for the Operations, Compliance, Finance, IT and Human Resource functions within the company. Before joining Polar Capital he spent eleven years at Lazard Asset Management where he ran the custody operation and fund management back office. He is a chartered accountant. Prior to his conversion to the world of finance he gained his engineering degree from Nottingham University and spent five years as a commissioned officer in the military. 2 POLAR CAPITAL HOLDINGS PLC
Overview of Polar Capital • Founded in December 2000 • Specialist asset management group, building a broad family of funds diversified by asset Polar Capital class, geography and sector specialisation and structure • Backed by Caledonia Investments and XL Capital • Aim to combine the best of the institutional and boutique fund manager models Philosophy • Primacy given to investment performance over asset gathering • Diversified yet complimentary set of funds with a focus on research-driven strategies. Impressive • AuM at 31 May 2007 $3.8bn, up 58% in the previous 14 months financial • Net operating profit (before IPO costs) for the year ended 31 March 2007 of £11.7m (2006: track record £11.9m) • Significant recent investment in central platform and new investment teams Platform for • Approximately $4.5bn of spare capacity in existing strategies growth • Attractive platform to recruit further fund manager talent and business units 3 POLAR CAPITAL HOLDINGS PLC
Overview of Polar Capital AuM split by strategy (15 June 2007) AuM split by business unit (15 June 2007) Utilities Macro 1% Managed and Advisory 1% Emerging Markets Investment Trust 8% 10% 18% Technology 28% Long Only Global Opportunities 20% 14% European 13% UK Japan 3% 30% Hedge Funds 54% 4 POLAR CAPITAL HOLDINGS PLC
Growth in assets under management $3,803 4000 $3,406 CAGR of 27% 3500 3000 $2,458 $2,269 2500 $2,037 $ millions 2000 1500 $922 1000 $811 500 0 31 Mar 02 31 Mar 03 31 Mar 04 31 Mar 05 31 Mar 06 31 Mar 07 31 May 07 Technology Japan UK Europe Development Funds Advisory 5 POLAR CAPITAL HOLDINGS PLC
Gross inflows and outflows Analysis by generation of assets Long Hedge Managed & Total Advisory Brought forward 31.3.2006 $1,470 $685 $303 $2,458 Performance and Currency Movements $50 $207 ($37) $220 Net subscriptions redemptions $43 $661 $25 $729 Total AUM at 31.03.2007 $1,563 $1,553 $291 $3,407 Analysis by generation of assets Long Hedge Managed & Total Advisory Brought forward 31.3.2007 $1,563 $1,553 $291 $3,407 Long only transferred to Hedge Funds ($95) $95 - - Performance and Currency Movements $44 $119 $4 $167 Net subscriptions redemptions ($44) $273 - $229 Total AUM at 31.05.2007 $1,468 $2,040 $295 $3,803 6 POLAR CAPITAL HOLDINGS PLC
Investment performance 2007 Year to Date 2006 Calendar Launch Fund Size Potential Index Volatility Return Index Volatility ($ millions) Capacity Return Target PCT Oct 2001 692 700 -1.5% -3.4 14.8% 4.5% 7.1% 12.5% Oct 2001 131 400 11.6% 13.3% 18.4% 6.1% 10.7% 14.6% Tech UCITS Long Only Oct 2001 487 800 -2.5% 1.0% 10.2% 0.8% -0.8% 12.5% Japan UCITS Oct 2004 156 400 17.5% 21.2% 12.5% 26.9% 13.6% 15.0% Asia ex Japan UCITS Longer Established Tech ARF Jul 2001 73 150 21.3% n/a 15.6% -6.4% n/a 13.5% Strategies Japan ARF Dec 2001 519 700 8.8% n/a 3.8% 5.6% n/a 6.1% UK ARF Nov 2001 105 500 6.3% n/a 4.3% 7.4% n/a 4.5% Hedge Funds Paragon Mar 2004 539 700 37.6% n/a 12.0% 8.4% n/a 16.9% Forager Aug 2003 251 400 21.8% n/a 5.0% 14.3% n/a 4.1% Conviction Mar 2006 240 800 5.5% n/a n/a 0.8% n/a 4.6% Utilities Oct 2005 43 500 5.0% n/a 3.6% 7.1% n/a 5.7% Discovery Apr 2006 50 700 -2.5% n/a n/a 2.2% n/a 5.4% Newer Latam May 2006 16 200 13.0% n/a n/a 12.2% n/a 7.1% Strategies Hedge Funds Jun 2006 34 350 9.0% n/a n/a 11.3% n/a 14.9% Lotus Apr 2006 134 300 20.3% n/a n/a 7.7% n/a 12.7% Elbrus Jan 2007 38 500 n/a n/a n/a 0.0% n/a n/a Columbus Note: Fund performance for 2007 is until 15 June 2007 7 The volatility calculations for 2007 are based on weekly returns whereas 2006 are based on monthly returns POLAR CAPITAL HOLDINGS PLC
Revenues Year to 31 March 2006 2007 £’000 £’000 • 2006 – 2007 management fee revenues: 84% increase in Hedge funds 5,154 9,505 Gross hedge funds and 14% Management Long only 9,033 10,358 increase in long only. Fees Managed accounts & 978 811 Advisory fees Distribution (1,766) (2,160) cost • Increase in hedge fund 13,398 18,514 Net core rev. performance fee revenues correlates to increase in hedge 16,038 19,568 Hedge funds fund revenues. Long only 8,966 1,027 Performance Fees Managed accounts 795 - • Performance fees earned 25,799 20,595 across all products and most Sub Total arrive in second half. Total 39,197 39,109 8 POLAR CAPITAL HOLDINGS PLC
Summary financial information • Reminder of existence and Year to 31 March effect of Minority Interest. 2006 2007 Financial Year £'000 £’000 • Pre tax core profitability up 2,458 3,406 AuM at period end ($m) 42%. 13,398 Net Core Revenues 18,514 Salary costs and other staff benefits (5,932) (4,181) Bonuses (1,070) (2,528) • Costs: as other operating Distributions from core revenues (908) (2,276) Other operating costs (5,336) (5,016) costs stabilised in 2007, (11,495) (15,752) Total Operating Expenses remaining expected to stabilise 1,903 2,762 Core Operating Profit in 2008. 25,799 20,595 Performance Fees (15,434) (12,554) Performance Fee distributions / bonuses 10,365 8,041 Performance Related Profitability • Performance fee profitability 12,268 Net Operating Profit 10,803 £8m (2006: £10.3m) Net Interest 347 914 11,717 12,615 Profit before tax and exceptional items Exceptional item – HMRC Scotland (705) 0 Profit before tax before IPO Costs 11,717 11,910 • Pre tax profit before IPO costs (1,030) IPO Costs (210) 10,687 Profit before tax 11,700 11,700 10,687 £11.7m (2006: £11.9m). Other operating data 14.9% 14.2% Core operating margin 27.6% 31.3% Operating margin 9 POLAR CAPITAL HOLDINGS PLC
Earnings • PBT of £11.7m above market expectations of April 2007 Year Ending 31 March (£11.45m). 2006 2007 £’000 £’000 • Tax charge distorted by IPO non Profit before tax 11,700 10,687 deductibility and EMI options Taxation (3,977) (2,537) deductibility. Profit after tax 7,723 8,150 • PAT increase to £8.15m (2006: Dividends £7.7m) 1 st Interim 10.87p 2.25p 2 nd Interim - 5.50p • Diluted EPS 12.81p (2006: 14.67p) Total 10.87p 7.75p Number of Shares • IPO costs adjusted diluted EPS Weighted average undiluted 45,705,661 55,584,586 14.43p (2006: 15.06p) Weighted average diluted 52,630,270 63,634,996 Earnings per share – basic 16.90p 14.66p Earnings per share – diluted 14.67p 12.81p • Final dividend of 5.5p making Earnings per share – diluted pre IPO costs 15.07p 14.43p dividend for year 7.75p (2006: 10.87p). 10 POLAR CAPITAL HOLDINGS PLC
Balance Sheet As at As at 31 March 2006 31 March 2007 £’000 £’000 Fixed assets Tangible assets 595 537 Investments 1,001 3,709 1,596 4,246 Current assets Debtors 4,780 4,230 Cash and short-term deposits 19,403 31,403 24,183 35,633 Total assets 25,779 39,879 Creditors – amounts falling due within one year (11,109) (8,291) Total assets less current liabilities 14,670 31,588 Minority interests (56) (64) Net assets and Shareholders Funds 14,614 31,524 11 POLAR CAPITAL HOLDINGS PLC
Cash Flow Statement Year Ended Year Ended 31 March 2006 31 March 2007 £’000 £’000 Operating activities Operating profit for the year 26,547 25,224 Depreciation charge 160 228 (Increase)/decrease in trade and other receivables (2,524) 554 Increase/(decrease) in trade and other payables (174) (160) Share based payment 38 52 Other non-cash reserve movements (79) (55) Net cash flow from operating activities 23,968 25,843 Net cash inflow from returns on investments and servicing of finance (8,318) (16,158) Taxation Paid (2,633) (3,563) Capital expenditure and financial investment (1,713) (2,678) Dividend paid (1,200) (5,880) Net cash inflow before financing 10,104 (2,436) Issue of share capital 1,020 14,436 Increase in cash and cash equivalents 11,124 12,000 Cash and cash equivalents at the beginning of the year 8,279 19,403 Cash and cash equivalents at the end of the year 19,403 31,403 12 POLAR CAPITAL HOLDINGS PLC
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