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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| New Star | LSE:NSAM | London | Ordinary Share | GB00B1VJF742 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1.90 | 0.00 | 00:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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EMBARGOED UNTIL 7.00 AM 29 August 2008
29 August 2008
New Star Asset Management Group PLC
Unaudited interim results for the six months to 30 June 2008
Key points
* Net revenue falls 16% to £72.8 million (2007 £86.5 million)
* Operating earnings fall 37% to £30.3 million (2007 £48.1 million)
(before taxation, interest, exceptional items and amortisation of
intangibles)
* Operating earnings per share down 22% to 13.6p (2007 17.4p)
(before taxation, interest, exceptional items and amortisation of
intangibles)
* Assets under management down 14% over the six-month period to £19.8 billion
* Interim dividend of 1p per share (2007 4p)
Commenting, John Duffield, Chairman, said:
"As expected, the first half of 2008 was a difficult period for New Star. The
trading environment remains difficult and we do not expect conditions to
improve in the immediate future.
We remain confident that through a combination of investment performance,
marketing and service we can return over the medium term to generating
significant value for our shareholders. We believe the long-term outlook for
our company is good."
Enquiries:
Citigate Dewe Rogerson
Anthony Carlisle (office) 020 7638 9571 (mobile) 07973 611888
CHAIRMAN'S STATEMENT
Chairman's interim statement for the six months ended 30 June 2008
As expected, the first half of 2008 was a difficult period for New Star. Amid
the toughest stockmarket conditions for more than five years, our net revenue
over the six months to 30 June 2008 fell 16% to £72.8 million while our
operating earnings before taxation, interest, exceptional items and
amortisation of intangible assets fell 37% to £30.3 million. Over the six-month
period, our total assets under management fell £3.3 billion to £19.8 billion.
Approximately £1.1 billion of the decline was due to net redemptions while the
balance of £2.2 billion resulted from changes in the market value of assets.
UK retail funds
The UK retail funds industry was significantly affected by the weakness and
volatility in financial markets over the first half of 2008. Retail investors
sought to reduce their exposure to equity and property mutual funds as a result
of their concerns about declining economic growth and rising inflation and
there were net redemptions from equity funds across the industry. New Star was
not immune from this trend. Within our UK retail funds business, we suffered a
net outflow of £307 million during the six-month period against a net inflow of
£1.1 billion during the first half of 2007. This outflow combined with the
impact of market movements, currency and performance left our total UK retail
funds at £9.3 billion against £10.6 billion at the start of the year.
Within this difficult environment, there were some significant bright spots.
The New Star International Property Fund, having been the best-selling UK
retail fund of 2007 according to the Investment Management Association,
continued to sell well, raising a net £126 million during the half year and
growing in size to £685 million.
Other positive contributors included our fund of funds portfolios, which raised
£50 million in total, the New Star UK Alpha Fund, which raised £45 million, the
New Star Heart of Africa Fund, which raised £45 million, and our two high-yield
corporate bond funds, which raised £39 million between them. The long-term
performance of our fund of funds portfolios has been a particular source of
strength recently and we were named "Best Multi-Manager Group" at the 2008
Professional Adviser Awards.
Over the half year, the investment performance of our largest equity fund, the
New Star European Growth Fund, improved significantly but the investment
performance of some of our UK equity funds remained unsatisfactory. These mixed
returns can be seen in the relative performance of our UK retail funds in
aggregate. On a size-weighted basis, 30% of our funds produced above-average
returns over the period. This should not, however, detract from the longer-term
achievements of our fund managers, with 56% of the funds having produced
above-average returns from launch or from the point when we started managing
them until 30 June 2008.
From the launch of our UK retail business seven years ago, our overriding
objective has been to provide investors with superior returns. We aim to
achieve this by giving fund managers with good track records the freedom to
perform within a rigorous risk management framework. By their nature, however,
actively-managed funds that focus on bottom-up stock selection can sometimes
produce returns that deviate disappointingly from their benchmarks. We have
responded by recruiting two additional fund managers to broaden and strengthen
our UK team. They have in recent weeks taken over the management of two of our
underperforming UK equity portfolios. We have also rationalised our fund range,
merging a number of our smaller and less successful funds into larger funds,
with the aim of improving returns for our retail investors.
Emerging markets
One of our priorities during late 2007 and the first half of 2008 has been the
strengthening of our emerging markets equities business. In doing this, we have
responded to the growing appetite among UK investors for investment in
less-developed parts of the world where economic growth trends have been
stronger than in the developed world and where political risks have been
reducing. In October 2007 we launched our Heart of Africa Fund. By 30 June
2008, the New Star Heart of Africa Fund had grown in size to £82 million,
having generated positive returns for its investors during a period in which
western equity markets fell significantly. Mindful of the liquidity constraints
of investing in Africa, we intend to limit the size of this strategy once it
reaches £100 million for a period of two years from inception.
In June 2008, we also launched the New Star Indian Equity Fund. We selected
Tata Asset Management as the investment adviser to this fund to provide us with
all-important local knowledge in the complex and rapidly-changing Indian equity
market. Tata, with about £3.5 billion of funds under management, is one of
India's fastest-growing asset managers and is a subsidiary of the Tata Group,
one of India's largest private sector companies. We intend to launch further
funds over the coming months to broaden our emerging market equities offering.
International retail funds
Over the first half of 2008, fund management groups operating in Continental
Europe found it difficult to retain existing investors and attract new business
in the face of declining equity markets and the competing attractions of
high-yielding savings accounts. Our range of Dublin-domiciled funds had a £402
million net outflow during the six-month period, leaving the assets under
management at £534 million at the period end. Our main European fund suffered
the bulk of the redemptions although its relative investment performance was
much improved.
Against this, there were some positive results within our international retail
marketing operations following our establishment of multiple currency share
classes for some of our leading UK-domiciled funds. As a result, the New Star
International Property Fund and the New Star Global Financials Fund experienced
significant international inflows.
Institutional funds
The first half of 2008 was notable for the relatively robust investment
performance of our international institutional business, which specialises in
investing in Europe, Australasia and the Far East (EAFE). Over the period,
these mandates were above the median in their peer group and were also more
resilient than the benchmark MSCI EAFE Index. To date, the clients of our
international institutional business have mainly been US-based and Canadian
investors.
The institutional business experienced net outflows of £209 million during the
first half of 2008, leaving its assets under management at approximately £7.5
billion.
Alternative assets
Our hedge fund business generated healthy positive returns in aggregate during
the first half of 2008. Net outflows totalled £81 million but positive
investment performance left the total funds under management within our
single-strategy and multi-strategy hedge funds only marginally down at £1.1
billion. The performance highlights were the 14.8% half-year return generated
by the New Star UK Gemini Hedge Fund and the 11.2% return generated by the New
Star Apollo Hedge Fund. In total, 73% of our single-manager hedge fund assets
were in hedge funds in the top two quartiles relative to their Eurohedge peer
groups over the half year.
Our global property fund, marketed to institutions and wealthy individuals,
ended the half year with assets under management of £450 million, up from £436
million at the start of the year.
Private clients
While market conditions during the first half of 2008 were negative for private
client fund managers, we were able to launch an initiative that could lead to a
significant increase in our private client funds under management over the
coming years. In March, we formed a venture with Intrinsic Financial Services,
one of the UK's most successful new distribution networks, to provide
Intrinsic's clients with access to private client-style multi-manager
investment funds. The four multi-asset class funds, which began trading in
June, are in the process of being linked to the platforms of leading UK
investment and pension providers.
New employee incentive scheme
We believe in motivating our key executives with equity incentives, ensuring
that their interests are closely aligned with those of our clients and our
shareholders. Since our flotation in 2005, employee-owned shares have been
subject to lock-in arrangements and the final release from these will occur
next year on the announcement of our 2009 interim results. Earlier this year,
therefore, we developed a new share-based employee incentive scheme, which was
approved by our shareholders at a general meeting on 20 June.
The new scheme is designed to incentivise key employees until at least 31
December 2012 and involves the issue of 35 million new shares. Under the plan,
the employees' interests in shares will only vest if and to the extent that
senior corporate executives, fund managers and sales executives achieve
challenging tailored targets, including achieving operating profits
substantially above those expected for the current year. The performance of New
Star's shares will determine the value of the awards to the participants.
Board changes
Having served as a director of the Group almost since our inception, Martin
Smith has decided to step down from our board. We thank him very much for his
long contribution to the Group.
As previously announced, John Tiner joined the board as a non-executive
director with effect from 1 April 2008.
Current trading
Trading conditions remain challenging.
Assets under management at 27 August were £19.1 billion compared with £19.8
billion at 30 June.
We have had £236 million of net redemptions from our international and UK
mutual funds since 30 June, as investors cut market exposure in the face of the
recent high volatility. Within this total, a reduction in the rate of
redemptions from international mutual funds has been offset by an increase in
the rate of redemptions from UK mutual funds. The relative performance of our
two principal UK equity funds has improved in the short term as financial and
interest rate sensitive consumer stocks have rallied and the investment
performance of our principal European fund, the New Star European Growth Fund,
has also improved. Our UK and international commercial property funds remain
highly liquid.
In alternative assets, there is an encouraging level of institutional interest
in leveraged property funds and we have recently launched a leveraged UK
commercial property fund. Through this higher margin asset class we expect to
replace revenue from a small number of low margin institutional accounts that
we have lost since 30 June. The investment performance of our main hedge funds
remains good in difficult markets.
Although significant expansion last year made cost increases this year
unavoidable, we have taken measures to keep our costs under control with the
aim of protecting our profitability as far as possible. We are reducing overall
employee numbers through natural attrition and we have instigated a number of
other cost-saving measures. We will continue to pay close attention to the
level of our costs as the year progresses. We expect to see the benefit of
these measures during the second half of 2008 and during 2009.
In response to a period of unsatisfactory investment performance, particularly
in some of our UK equity funds, we are taking steps to strengthen and deepen
our investment team. We have recruited a senior individual for the role of
chief investment risk officer and we expect to strengthen further our
investment team. We have made a number of changes to our retail investment
funds during the year and we anticipate more changes as the year progresses.
As we signalled in January, we intend to continue using our cashflow
principally to reduce further our net debt, which had been reduced to £241
million by the end of June.
Dividends
An interim dividend of 1p per share will be paid on 28 October 2008 to
shareholders on the register at 12 September 2008.
Prospects
This is a difficult time for most financial services firms and New Star is no
exception. We do not expect conditions to improve significantly in the
immediate future.
Amid these conditions, we are working hard to take the business forward. We
remain confident that through a combination of investment performance,
marketing and service we can return over the medium term to generating
significant value for our shareholders. We believe the long-term outlook for
our company is good.
J L Duffield
29 August 2008
CONSOLIDATED INCOME STATEMENT
Six months Six months Year ended
ended 30 ended 30 31 December
June 2008 June 2007 2007
Notes £'000 £'000 £'000
Revenue 112,164 134,151 263,221
Fees and commissions (39,314) (47,609) (89,952)
Net Revenue 72,850 86,542 173,269
Operating expenses (42,504) (38,477) (75,194)
Operating Earnings* 30,346 48,065 98,075
Intangible amortisation (11,201) (11,626) (23,244)
Exceptional IPO costs - (2,388) (2,388)
Operating Profit 19,145 34,051 72,443
Finance revenue 1,158 1,561 3,048
Finance expense (9,985) (737) (12,679)
Profit Before Taxation 10,318 34,875 62,812
Taxation 3 (2,427) (9,316) (16,351)
Profit For The Period Attributable To 7,891 25,559 46,461
Equity Holders Of The Parent
Operating earnings per share (pence) 4 13.55 17.38 39.51
*
Basic earnings per share (pence) 4 3.53 9.24 18.72
Diluted earnings per share (pence) 4 3.50 9.23 18.45
* In the opinion of the directors the operating earnings (profit before
taxation, interest, exceptional items and, amortisation of intangibles) more
accurately reflect the underlying profitability of the Group and its ongoing
activities.
CONSOLIDATED BALANCE SHEET
30 June 30 June 31 December
2008 2007 2007
Notes £'000 £'000 £'000
Non-current assets
Intangible assets 19,315 42,136 30,518
Property and equipment 5,368 3,267 4,531
Financial assets 4,669 5,113 5,260
Deferred tax 742 824 2,479
Trade and other receivables 6,597 6,579 6,655
36,691 57,919 49,443
Current assets
Trade and other receivables 85,796 139,489 106,020
Financial assets 6,101 691 681
Cash and cash equivalents 18,579 30,492 29,237
110,476 170,672 135,938
Total assets 147,167 228,591 185,381
Current liabilities
Trade and other payables (83,967) (143,543) (112,987)
Current tax (2,427) (4,488) (5,866)
(86,394) (148,031) (118,853)
Non-current liabilities
Long-term borrowings 6 (256,589) (296,168) (266,249)
Trade and other payables 7 (3,913) (2,961) (11,038)
Provisions (54) (111) (66)
(260,556) (299,240) (277,353)
Total liabilities (346,950) (447,271) (396,206)
NET ASSETS (199,783) (218,680) (210,825)
Equity
Share capital 8 58,395 58,445 58,395
Retained earnings 9 141,229 122,776 134,830
Other reserves 9 (405,927) (406,510) (410,847)
EBT reserve 9 6,520 6,609 6,797
Equity attributable to equity holders 9 (199,783) (218,680) (210,825)
of the parent
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
Six Six months Year ended
months ended 30 31
ended 30 June 2007 December
June 2008 2007
£'000 £'000 £'000
Profit for the period 7,891 25,559 46,461
Exchange movement on translation of 321 (648) (91)
foreign operations
Fair value movement on available for sale 144 848 285
assets
Fair value movement on hedge instruments 4,455 - (4,872)
after taxation
Net income/(expense) recognised directly 4,920 200 (4,678)
in equity
Total recognised income and expense for 12,811 25,759 41,783
the period
CONSOLIDATED CASH FLOW STATEMENT
Six Six Year ended
months months 31 December
ended 30 ended 30 2007
June 2008 June 2007
£'000 £'000 £'000
Cash flow from operating activities
Profit after tax 7,891 25,559 46,461
Depreciation charges 699 530 1,150
Amortisation of intangible assets 11,201 11,626 23,244
Profit on sale of property and - - (7)
equipment
Profit on sale of financial assets - - (320)
Share-based element of remuneration 750 360 521
Net finance expense/(income) 8,827 (824) 9,631
Income tax expense 2,427 9,316 16,351
31,795 46,567 97,031
Changes in operating assets and
liabilities
Increase / (decrease) in financial (5,420) 3,209 3,219
assets
Decrease / (increase) in trade and 20,224 (45,951) (10,359)
other receivables
(Decrease) / increase in trade and (29,170) 59,608 28,628
other payables
Decrease in provisions (12) - (63)
Net cash flow from operating activities 17,417 63,433 118,456
before taxation
Taxation paid (5,852) (9,024) (14,422)
Net cash flow from operating activities 11,565 54,409 104,014
Cash flow from investing activities
Purchase of investments - (8,190) (8,190)
Proceeds from the sale of investments - 15,498 16,086
Purchase of property and equipment (1,536) (482) (2,373)
Proceeds from sale of tangible fixed - - 12
assets
Net cash flow from investing activities (1,536) 6,826 (5,535)
Cash flow from financing activities
Proceeds from the issue of share - 1,686 1,686
capital
Movements in EBTs' reserves (277) 27,468 27,656
Repayment of loans to employees 58 2,713 2,637
Receipts from long-term borrowing - 300,000 300,000
Repayment of short-term borrowing (10,000) - (30,000)
Finance income received 1,158 1,844 -
Finance expense paid (9,645) (4,588) 3,048
Repayment of long term borrowing - - (16,430)
Repayment of capital to shareholders - (364,970) (364,970)
Decrease in other non-current financial (60) - -
liabilities
Dividends paid (2,242) (14,076) (23,085)
Net cash flow from financing activities (21,008) (49,923) (99,458)
Net change in cash and cash equivalents (10,979) 11,312 10,091
Cash and cash equivalents at start of 29,237 19,237 19,237
period
Exchange movements 321 (57) (91)
Cash and cash equivalents at end of 18,579 30,492 29,237
period
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
Summary of significant accounting policies
a. Statement of compliance
The 2008 interim financial statements of the Group are prepared in accordance
with IAS34 `Interim Financial Reporting'.
The financial information contained in this interim report does not constitute
statutory accounts as defined in s240 of the Companies Act 1985. The financial
information for the six months ended 30 June 2008 and 2007 has not been
audited. The information for the year ended 31 December 2007 has been extracted
from the latest published audited accounts which were prepared in accordance
with International Financial Reporting Standards ("IFRS") as adopted by the EU
and have been filed with the Registrar of Companies. The report of the
Independent Auditor on those financial statements contained no qualification or
statement under s237(2) or (3) of the Companies Act 1985. Further copies of the
report are available from the Company Secretary at the registered
office.available from the Company Secretary at the registered office.
b. Basis of preparation
The following accounting policies have been applied consistently to all periods
presented in these consolidated financial statements.
They have been prepared under the historical cost convention, except that the
following assets are stated at their fair values; derivatives, financial
instruments held for trading and financial assets that are designated as
available for sale.
c. Basis of consolidation
The consolidated financial statements include the accounts of New Star Asset
Management Group PLC (the Company) and each of its subsidiaries. Subsidiaries
are entities that are controlled by the Company. Control exists when the
Company has the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities. The financial statements
of subsidiaries are included in the consolidated financial statements from the
date that control begins to the date that control ceases.
The Group's Employee Benefit Trusts (EBTs) are included in the consolidated
financial statements.
Intra-group balances and any unrealised gains and losses or income and expenses
on intra-group transactions are eliminated in preparing these consolidated
financial statements.
d. Foreign currency
(i) Foreign currency transactions
Transactions denominated in foreign currencies arising during the accounting
period are translated into sterling at the foreign exchange rate ruling at the
date of the transaction. All monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are translated into sterling at
the rate ruling at that date. All exchange gains or losses are taken to the
income statement in the period in which they arise. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign currency
are translated using the foreign exchange rates ruling at the date of the
transaction. Non-monetary assets and liabilities that are measured in terms of
fair value in a foreign currency are translated using the exchange rate ruling
at the date of the measurement of fair value.
(ii) Financial statements of foreign operations
Revenues and expenses of foreign operations are translated into sterling at
average rates of exchange. Assets and liabilities of foreign operations are
translated into sterling at the rate ruling at the balance sheet date. Exchange
differences arising from the translation of the assets and liabilities of
foreign operations are shown as a separate component of equity.
e. Property and equipment
Property and equipment are stated at cost less accumulated depreciation and
impairment losses. Cost represents purchase cost, together with any directly
attributable expenses of acquisition. Subsequent expenditure on property and
equipment is only capitalised when it is probable that there will be future
economic benefit. All other expenditure is recognised as an expense in the
income statement.
The costs of purchasing and implementing software, together with associated
relevant expenditure, are capitalised where the relevant conditions in IAS16
are met. Software is recorded initially at cost and then depreciated on a
straight line basis over its estimated useful life. The depreciated cost of the
software is reviewed each year end to determine whether there is an indication
of impairment. Any depreciation or impairment is charged in the income
statement.
Depreciation is charged to the income statement on a straight-line basis over
the estimated useful lives of each part of an item of property and equipment.
The estimated useful lives are as follows:
Leasehold improvements Period of the lease
Computer equipment 3 years
Software 3 years
Furniture and equipment 5 years
Motor vehicles 3 years
The residual values and useful lives of the assets are reviewed at least
annually. If there is evidence of impairment then the asset is written down to
its recoverable amount. Any depreciation or impairment is charged in the income
statement as an expense.
f. Intangible assets - management contracts
The cost of the rights to manage assets is capitalised as an intangible asset.
Where the management contracts do not have a defined life, an estimate of the
useful life is made and the costs are amortised on a straight line basis over
their useful lives. Where the management contracts have a defined useful life,
the cost is amortised over the period of the contract. The amortised cost of
these management contracts is reviewed annually to ensure no impairment has
occurred. Any amortisation or impairment is charged in the income statement as
an expense.
The estimated useful lives for the retail contracts acquired in 2003 was 6
years and for the Family Assurance and Exeter Financials Fund was based on the
finite life of the contract, which is 4 years and 33 months respectively.
g. Impairment
The carrying amounts of the Group's assets are reviewed at each balance sheet
date to determine whether there is any indication of impairment. If any such
indication exists, the asset's recoverable amount is estimated. An impairment
loss on available-for-sale financial assets is recognised only when the
carrying amount of an asset exceeds its recoverable amount and it is considered
very unlikely that the carrying amount will be recovered. Impairment losses are
recognised in the income statement.
An impairment loss is reversed if there has been a change in the estimates used
to determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset's carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
When a decline in the fair value of an available-for-sale financial asset has
been recognised directly in equity and there is objective evidence that the
asset is impaired, the cumulative loss that has been recognised directly in
equity is recognised in the income statement even though the financial asset
has not been derecognised. The amount of the cumulative loss that is recognised
in the income statement for an impaired asset is the difference between the
acquisition cost and current fair value, less any impairment loss on that
financial asset previously recognised in the income statement.
h. Financial instruments
i. Derivatives
The Group uses derivative financial instruments to manage its exposure to
interest rate risk. These contracts are designated as effective cash flow
hedges and changes in fair value are recognised directly in equity. Any
ineffective part of the hedge is recognised in the income statement
immediately.
When a hedging instrument expires or is sold, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss existing in
equity at that time remains in equity and is recognised when the forecast
transaction is ultimately recognised in the income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that
was reported in equity is immediately transferred to the income statement.
Derivative instruments are not used for trading or speculative purposes.
ii. Investments
Non current investments are designated as available for sale and are stated at
fair value, with any movement in fair value being recognised in the fair value
reserve, except for impairment losses and foreign exchange gains and losses.
When the investment is sold or written off, the cumulative gain or loss dealt
with through this reserve is recognised in the income statement.
iii. Stock of shares/units
The stock of shares/units represents shares held in the Group's open ended
investment companies and unit trusts. They are held for trading and are stated
at fair value, with any movement in fair value being recognised immediately in
the income statement.
i. Trade and other receivables
Trade and other receivables are initially recorded at fair value and
subsequently at amortised cost less impairment losses.
j. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and short-term deposits with an
original maturity of three months or less.
k. Trade and other payables
Trade and other payables are recognised at amortised cost.
l. Borrowings
Borrowings are recognised initially at fair value less transaction costs.
Subsequent to initial recognition, borrowings are held at amortised cost with
any difference between amortised cost and redemption value being recognised in
the income statement over the period of the borrowings on an effective interest
rate basis.
m. Employee benefits
The Group operates a defined contribution pension scheme. Contributions are
charged to the income statement as they become payable in accordance with
contractual terms.
n. Share-based payments
The Group operates schemes that allow employees including Directors to purchase
shares in the Company. The employee purchases the shares with a loan advanced
by one of the Group's Employee Benefit Trust's. The employees have charged the
relevant shares held by them in favour of an EBT by way of security for their
obligations to the EBT. The employees' obligations to pay or repay sums to the
EBT are of a limited recourse nature as the employees' liability is capped at
the proceeds of sale of the shares charged by them. The Group calculates the
fair value of these awards using a Black-Scholes model. The fair value is
recognised as an employee cost in the income statement over the period during
which the employees become unconditionally entitled to the shares, being the
period from the date of grant. The amount recognised is adjusted to reflect the
expected and actual numbers of shares that the employees become unconditionally
entitled to.
The Group also operates share option schemes that allow employees including
Directors to purchase shares in the Company. The fair value of the options is
measured on the grant date and spread over the period during which the
employees become unconditionally entitled to the underlying shares. The fair
value of the options granted is determined using a Black-Scholes model, taking
into account the terms and conditions upon which the options were granted. The
amount recognised in the income statement is adjusted to reflect the expected
number of options that vest.
All schemes are classified as being equity settled.
Distribution of surpluses in the Group's EBTs, are recognised in the income
statement when paid.
o. Provisions
A provision is recognised in the balance sheet when there is a current
obligation as a result of a past event and it is probable that a future outflow
of economic benefits will be required to settle the obligation.
A property provision for lease obligations is recognised where the expected
benefits to be derived by the Group from the lease are lower than the
unavoidable costs of meeting its obligations under the lease.
p. EBT reserve
The EBT reserve represents realised profits, shares at cost held by the Group's
EBTs less loans secured by shares sold by the Group's EBTs.
q. Revenue
Revenue comprises management and advisory fees, gross performance fees, gains
(or losses) arising on the Group's holdings in shares of open-ended investment
companies (OEICs) and unit trusts and property acquisition fees. Revenue is
recognised when it is probable that economic benefit will flow to the Group and
it can be reliably measured. To the extent that the Group collects (and pays)
amounts in respect of the services provided to investors by intermediaries upon
the sale of units, then the amounts received (and paid) are not included in the
income statement.
The following specific recognition criteria have been adopted:
(i) Management and advisory fees
Management and advisory fees are recognised over the period in which the
service is provided.
(ii) Front-end fees
Where front-end fees are received for the sale of OEICs and unit trusts the net
retained fee is recognised on sale.
(iii) Performance fees
Performance fees are recognised when the quantum of the fee can be estimated
reliably and it is probable that the fee will crystallise. This is at the end
of the performance period.
(iv) Gains (or losses) arising on the Group's holdings in shares of open-ended
investment companies and unit trusts
Where holdings are classified as held for trading then any movement in fair
value is recognised immediately.
(v) Property acquisition fees
Property acquisition fees are recognised using the percentage completion
method.
r. Expenses
i. Fees and commissions
Fees and commissions in respect of the management of investment management
contracts are recognised over the period the service is provided. Included in
fees and commissions is the share of the management and performance fees
received payable to third parties including fund managers.
ii. Operating leases
Payments made under operating leases are recognised in the income statement on
a straight line basis over the term of the lease. Lease incentives received are
recognised on a straight line basis over the lease term.
iii. Exceptional items
An item is considered to be an exceptional item if it does not usually occur in
the normal course of the business and, or it is unusually large so as to
mislead a reader if it is not shown separately in the income statement.
s. Finance income and finance cost
Interest income and expense are calculated using the effective yield basis.
Finance income comprises interest on short-term deposits and finance cost
comprises interest paid on borrowings and the amortised transaction costs on
borrowings.
t. Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement except to the extent that it relates to
items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
calculated using the annual average tax rate using rates enacted, or
substantially enacted, at the balance sheet date, and any adjustments in
respect of prior years.
Deferred tax is provided using the balance sheet liability method, providing
for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation
purposes. The amount of deferred tax provided is based on the expected manner
of realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted at the balance sheet date.
A deferred tax asset is only recognised when it is probable that there will be
future taxable profits available against which to offset the asset. Deferred
tax assets are reduced to the extent that it is no longer probable that the
related tax benefit will be realised.
u. Segmental reporting
A segment is a distinguishable component of the Group that is engaged either in
providing products or services (business segment), or in providing products or
services within a particular economic environment (geographical segment), which
is subject to risks and rewards that are different from those of other
segments.
v. Accounting estimates, assumptions and judgements
The preparation of the financial statements necessitates the use of estimates,
assumptions and judgements. These estimates, assumptions and judgements affect
the reported amounts of assets, liabilities and contingent liabilities at the
balance sheet date as well as affecting the reported income and expenses for
the year. Although the estimates are based on management's knowledge and best
judgement of information and financial data, the actual outcome 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 and prior periods, or in
the period of the revision and future periods if the revision affects both
current and future periods.
The significant estimates and judgements in drawing up the Group's consolidated
financial statements are in connection with any impairment and the principal
assumptions underlying the valuation of the Group's share-based payments.
w. Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
(i) Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of the
consideration paid, including directly attributable costs, is recognised as a
change in equity. Repurchased shares are classified as treasury shares and
presented as a deduction from total equity.
(ii) Dividends
Dividends payable to the Company's shareholders are recognised as a liability
in the period in which they are declared.
2 REVENUE - SEGMENTAL AND GEOGRAPHICAL ANALYSIS
The Group operates as a single asset management business, and the directors do
not consider the different sources of revenue and geographic regions within the
business as separate business segments within the meaning of IAS 14 Segment
Reporting.
The risks and returns to the Group across the different income sources and
geographic regions are not significantly different and it is the clients
themselves who have the different risk / return profiles. All of the Group's
clients are consuming the same service - asset management and the fund managers
may manage funds across two or more different income sources and geographic
regions. On this basis New Star considers itself to be a single segment
investment management business.
3 TAX
The major components of tax expense are as follows:
Six months Six Year ended
ended 30 months 31 Dec 2007
June 2008 ended 30
June 2007
£'000 £'000 £'000
Consolidated income statement
Current tax
Current tax charge 2,419 8,719 15,930
Adjustment in respect of prior periods - - (415)
current bx change 2,419 8,719 15,515
Deferred tax
Recognition of tax losses - 362 362
IFRS 2 share - based payments - 249 463
Deferred tax on temporary differences (31) - (30)
Deferred tax resulting from a reduction in 39 - 41
tax rate
Origination and reversal of temporary - (14) -
differences
Tax expense in the consolidated income 2,427 9,316 16,351
statement
4 EARNINGS PER SHARE
Six Six months Year ended
months ended 30 31 Dec 2007
ended 30 June2007
June 2008
Earnings (£'000s)
Operating earnings 30,346 48,065 98,075
Profit after tax 7,891 25,559 46,461
Weighted average number of shares (`000s)
Ordinary shares 223,948 276,517 248,211
Diluted shares 225,399 277,037 251,849
Operating earnings per share (p)
Basic 13.55 17.38 39.51
Diluted 13.46 17.35 38.94
Earnings per share (p)
Basic 3.53 9.24 18.72
Diluted 3.50 9.23 18.45
5 RECONCILIATION OF EARNINGS PER SHARE
Six Six months Year ended
months ended 30 31 Dec 2007
ended 30 June 2007
June 2008
p p p
Profit for the period attributable to 3.53 9.24 18.72
equity holders of the parent
Amortisation of intangibles 5.00 4.21 9.36
Exceptional IPO costs - 0.86 0.96
Net interest 3.94 (0.30) 3.88
Taxation 1.08 3.37 6.59
Operating earnings 13.55 17.38 39.51
Six Six months Year ended
months ended 30 31 Dec
ended 30 June
June 2007
2007
2008
EARNINGS £'000 £'000 £'000
Profit attributable to equity holders of 7,891 25,559 46,461
the parent
Amortisation of intangibles 11,201 11,626 23,244
Exceptional IPO costs - 2,388 2,388
Net interest 8,827 (824) 9,631
Taxation 2,427 9,316 16,351
Operating earnings 30,346 48,065 98,075
6 LONG TERM BORROWINGS Six Six months Year ended
months ended 30 31 Dec
ended 30 June
June 2007
2007
2008
£'000 £'000 £'000
Long-term borrowings 256,589 296,168 266,249
On 19 April 2007, New Star Asset Management Group PLC entered into a loan
facility agreement with the Governor and Company of the Bank of Scotland for a
facility of £350 million, which is repayable by 30 June 2013. The Company drew
down £300 million on 19 June 2007 and the balance outstanding at 30 June 2008
was £260 million. The loan is charged currently at a floating rate of LIBOR
plus 1.00%.
The costs of arranging the financing have been added to the debt and are being
amortised over the life of the debt.
The company has entered into a reducing balance interest rate swap (IRS) on £
300 million and an interest rate cap on £50 million. The purpose of the IRS is
to exchange floating for fixed interest payments.
The loan facility made available under this agreement is unsecured but is
guaranteed by New Star Asset Management Group Holdings Limited, New Star Asset
Management Holdings Limited and New Star Institutional Managers Holdings
Limited.
7 NON-CURRENT LIABILITIES
Included within non-current trade and other payables is £512,841 (2007: £
541,273) representing the fair value of hedging instruments under cash flow
hedges.
8 SHARE CAPITAL
Authorised Number of Shares £'000
At 30 June 2008
Ordinary Shares of 0.25p each 336,000,000 84,000
Allotted, issued and fully paid
Ordinary Shares of 0.25p each 233,580,859 58,395
The number of ordinary shares at 30 June 2007 and 31 December 2007, both
authorised and issued were as above.
Ordinary shares in the Company rank pari passu. All of the ordinary shares in
issue carry the same right to receive dividends and other distributions
declared, made or paid by the company.
50,000 redeemable preference shares of £1.00 each (June 2007: 50,000) were
redeemed and cancelled on 21 December 2007.
Subsequent to 30 June 2008, additional ordinary shares have been issued (see
note 10).
9 RECONCILIATION OF MOVEMENT IN RESERVES
Share Share Capital Retained Other Own Total
capital premium earnings reserves shares
Redemption
reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 14,541 257 1,119 110,933 (407) (20,859) 105,584
January 2007
Share capital 83 1,603 1,686
allotted and
issued
(including share
premium)
Purchase and (25) 25 0
cancellation of
shares
Reverse (14,599) (1,860) (1,144) (405,762) (423,365)
acquisition
accounting
- - - 110,933 (406,169) (20,859) (316,095)
Shares issued in 58,445 58,445
relation to
scheme of
arrangement
Total recognised 25,559 200 25,759
income and
expense
Dividends paid (14,076) (14,076)
in period
Hedge valuation (541) (541)
Movements in EBT 27,468 27,468
Share based 360 360
payments
Balance at 30 58,445 - - 122,776 (406,510) 6,609 (218,680)
June 2007
Balance at 1 58,395 - - 134,830 (410,847) 6,797 (210,825)
January 2008
Total recognised 7,891 4,920 12,811
income and
expense
Dividends paid (2,242) (2,242)
in period
Movement in EBT (277) (277)
Share based 750 750
payments
Balance at 30 58,395 - - 141,229 (405,927) 6,520 (199,783)
June 2008
Included within the EBT reserves is £8.6 million (2007: £7.3 million) of the
Company's own shares held at cost.
At 30 June 2008 the EBT's had a realised and unrealised surplus in total of
approximately £31.5 million (2007: £44.0 million).
Other reserves
i. Translation reserve (June 2008: £0.5 million; June 2007: (£0.6 million)
The translation reserve comprises differences on exchange arising from the
translation of the opening balance sheets of subsidiaries whose reporting
currency is not pounds sterling, and the differences between the results of
these subsidiaries translated at average rates for the reporting year and year
end rates. The translation reserve also includes unrealised foreign exchange
gains and losses on available-for-sale financial assets.
ii. Revaluation reserve (June 2008 (£0.2 million); June 2007: £0.2 million
The revaluation reserve comprises the amount of any gain or loss recognised
directly in equity in relation to available-for-sale financial assets. Upon
realisation of a gain or loss previously recognised in the translation or
revaluation reserve in respect of available-for-sale financial assets, the
amount previously recognised is reversed out and the full amount of any gain or
loss is taken to the income statement.
iii. Hedging reserve (June 2008(£0.4 million); June 2007 (£0.3 million)
The hedging reserve comprises the amount of any unrealised gain or loss
recognised directly in equity on the fair value relating to the effective
portion of interest rate hedges.
iv. Reverse acquisition accounting reserve (June 2008 and June 2007(:£405.8
million))
The reverse acquisition accounting reserve comprises the cash paid under the
scheme of arrangement plus the additional capital issued.
Own shares
Own shares are included in the retained earnings reserve and comprise the cost
of the purchase and sale of own shares held by the EBTs, realised gains in the
EBT and the cost of the loans secured by the shares in the EBTs. This reserve
is a non-distributable reserve.
Capital redemption reserve
The capital redemption reserve was a non-distributable reserve created when the
Company's shares were redeemed or purchased other than from the proceeds of a
fresh issue of shares.
10 POST BALANCE SHEET EVENTS
The board of directors have proposed an interim dividend of 1.0p per share for
the period ended 30 June 2008 to be paid on 28 October 2008 to shareholders on
the register at 12 September 2008. The proposed dividend was approved after the
period end and has not therefore been included as a liability in these
financial statements.
On 15th July 2008 the Company issued 35 million new Ordinary shares of 25p each
to two new Group's EBT's. These shares were issued pursuant to the New Star
Employee Share Ownership Plan and will rank pari passu with the Company's
existing issued Ordinary shares.
OTHER INFORMATION
This announcement is not for publication or distribution to persons in the
United States of America, its territories or possessions or to any US person
(within the meaning of Regulation S under the US Securities Act of 1933, as
amended). Neither this announcement nor any copy of it may be taken or
transmitted into Australia, Canada or Japan or to Canadian persons or to any
securities analyst or other person in any of those jurisdictions. Any failure
to comply with this restriction may constitute a violation of United States,
Australian, Canadian or Japanese securities law. The distribution of this
announcement in other jurisdictions may be restricted by law and persons into
whose possession this announcement comes should inform themselves about, and
observe any such restrictions.
FORWARD-LOOKING STATEMENTS
This preliminary announcement contains certain forward-looking statements with
respect to the financial condition, results of operations and businesses of New
Star Asset Management Group PLC. These statements and forecasts involve risk
and uncertainty because they relate to events and depend upon circumstances
that will occur in the future. There are a number of factors that could cause
actual results or developments to differ materially from those expressed or
implied by these forward-looking statements and forecasts. Nothing in this
announcement should be construed as a profit forecast.
END
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