Profit before tax fell 18% to £62.1m, as an increase in operating costs more than offset a 7.6% increase in total income to £225.7m. Core operating profit, which measures management fees less operating costs, rose 35% to £69.4m, but performance fee profits fell 78.9% due to last year's exceptionally strong figures.
At the full year, assets under management (AuM) had risen 6% to £22.1bn, with 31% attributable to net inflows and the remaining £867m down to investment performance. Average AuM for the year was up 37% to £22.8bn. That reflected a peak of £25bn in early January, followed by a decline as markets sold off in the 3 months from March.
The second interim dividend will be 32.0p, bringing to the total for the year to 46.0p, a 15% increase.
Shares rose 1.5% following the announcement.
View the latest Polar Capital share price and how to deal
Our View
Polar Capital's bottom line shrunk this year, never a good thing. But as an asset management company, Polar's fortunes tend to wax and wane alongside the market, so a less-than-stellar year was to be expected.
The group has particular expertise in Technology and Healthcare, which account for 42% and 17% of assets under management (AuM) respectively. That served it well up until this year when the tech sector sold off in response to rising interest rates. The downturn hit performance fee profits, or those the group earns by outperforming benchmarks. Polar also invests some of its capital in its own funds, which offers additional income. This also fell due to the market's downturn.
The good news is that core operating profits rose, which rely on growing AuM. This is reassuring because it shows the group's base is expanding. The areas of growth were encouraging too. Segregated Mandates, funds run exclusively for a particular client, were responsible for the lions share of net inflows. This is a key growth area for Polar because they tend to have a longer relationship. It was therefore encouraging to see Segregated Mandates crept up to 5% of overall AuM. We also saw more diversity in the portfolio as the group continues to build out expertise in emerging markets, sustainable energy, and Europe. All of this should help foster long-term growth and add to the group's value as a specialist fund manager.
But growth in the core operating profits wasn't enough to offset a near 20% increase in operating costs. Performance-based rewards were lower, in line with the group's overall lower performance fees, but this was more than offset by rising employee costs. The Dalton acquisition brought additional staff costs with it and an old share-based reward system saw some management teams cashing in.
Taking all of this into account, pre-tax profit margins have fallen from 36% to 28%. That's a big hit to profitability, which, if not restored could start to take a toll on an otherwise healthy balance sheet.
That brings us to the group's prospective dividend yield of 8.6%. Management upped its dividend payments this year, to 88% of net profit. That's high by our standards and exceeds management's target of between 55% and 85%, suggesting dividend growth is unlikely unless performance picks up materially over the next year. Remember no dividend or yield is guaranteed.
With a price-to-earnings ratio some way below the long-term average, the market is concerned about the future. With market conditions being what they are, Polar has to pedal harder to maintain its finances. It will take time to diversify away from tech, so the group remains at the mercy of the sector for the time being.
Polar Capital key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Profit before tax fell 18% to £62.1m, as an increase in operating costs more than offset a 7.6% increase in total income to £225.7m. Core operating profit, which measures management fees less operating costs, rose 35% to £69.4bn, but performance fee profits fell 78.9% due to last year's exceptionally strong figures.
Full Year Results
AuM for open ended funds (75% of total) saw no change, whilst investment Trusts (20% of total) rose slightly. Segregated mandates, funds run exclusively for a particular client, saw AuM rise £745m to make up 5% of the group's total.
The group continued its pivot away from Technology, with 42% of AuM invested in the sector compared to 49% last year. £1.3bn in net outflows from technology were more than offset by net inflows to sustainable Emerging Markets, Healthcare, alternative Convertible Bond Funds, European Opportunities and newly launched Sustainable Thematic Equities.
The decline in fund performance versus last year meant performance rewards to staff more than halved. However, this was more than offset by rising costs as new teams were added and management fees rose given the increase in AUM.
Lower profits together with the timing of dividend payments meant the group's cash position fell from £136.7m to £121.1m.
Find out more about Polar Capital shares including how to invest
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.