EMBARGOED UNTIL 7.00AM 28 September 2007
28 September 2007
New Star Asset Management Group PLC
Unaudited interim results for the six months to 30 June 2007
Highlights:
Commenting today, John Duffield, Chairman, said:
"We have had a record first half. We now face a somewhat more challenging environment. Subject to markets not deteriorating, we remain robust about our prospects for the full year and expect to continue to generate growth from our well diversified product range in the medium term."
Enquiries:
Citigate Dewe Rogerson
Anthony Carlisle (office) 020 7638 9571 (mobile) 07973 611888
Chairman's interim statement for the six months ended 30 June 2007
The first half of 2007 was a period of strong organic growth for New Star. Our net revenue over the six months to 30 June 2007 rose 39% to £86.5 million while our operating earnings before taxation, interest, exceptional items and amortisation of intangibles rose 58% to £48.1 million. Over the six-month period, our total assets under management rose 17% from £21.1 billion to £24.7 billion. Our net inflows of assets totalled £2.3 billion, up from £851 million in the first half of 2006.
UK retail funds
Within our retail funds business, net sales of UK funds totalled £1.1 billion during the six-month period, up 54% on the first half of 2006. In the UK market, our share of net retail sales was 17.2%, a percentage that we believe placed us in the top three fund providers over the half year as measured by net retail sales. At 30 June, our total UK funds totalled £11.1 billion, up from £9.7 billion at 31 December 2006.
Of our equity and bond funds, the European Growth Fund raised a net £207 million during the half year, the Higher Income Fund raised £183 million and the Managed Distribution Fund raised £100 million. In addition, we were able to complete a £172 million transfer of funds from Tilney shortly after the period end. This transaction also enabled us to recruit a further top-performing fund manager for our European investment team.
From the launch of our UK retail business six years ago, our overriding objective has been to provide investors with superior returns. We aim to achieve this by giving star fund managers the freedom to perform within a rigorous risk management framework. It is a philosophy that has generated healthy performance. Of our UK retail equity and bond funds and funds of funds, 74% on a size-weighted basis have produced above-average returns from launch or from the point when we started managing them until 30 June 2007.
Property
Our biggest marketing initiative during the first half of 2007 was the launch of the New Star International Property Fund as a complementary fund to our UK-focussed New Star Property Unit Trust. The fund was launched in response to growing recognition among investors and financial advisers of property as a third core asset class alongside equities and bonds. The fund is the first of its kind, and so far the only one, to offer UK retail investors access to international direct bricks and mortar commercial property investment. As such it provides both geographic and asset class diversification for investors with traditional equity and bond portfolios. The inflows during the fund's initial offer period made it, we believe, the most successful individual retail fund launch ever in the UK . By 30 June, inflows had totalled £211 million and there were further strong inflows after the period end, taking the fund to £372 million in size by 26 September.
The first half of 2007 was also a strong period for inflows into the Property Unit Trust, with the fund raising a net £379 million. There was, however, a shift in the market environment for the fund over the summer. As a result, on 10 July, following a number of days when the fund experienced more sellers than buyers, the pricing of units was switched from an “offer” to a “bid” basis. This standard industry practice is normally applied to all dual-priced funds to ensure all investors are treated fairly. Due to the higher transaction costs for direct property, including 4% stamp duty, this affects property funds more than equity and bond funds. With our fund, this change reduced the price at which unitholders sell units by 4.1%. Should the fund return to an “offer” basis, the price at which unitholders sell units will be adjusted upwards accordingly. Since 10 July, sellers of the fund have been approximately in balance with buyers, leaving the size of the fund virtually unchanged.
International retail funds
In the international market for retail funds, we have made further progress in building our presence in Continental Europe, selling mainly through “open architecture” banks and insurers. International retail inflows rose 313% from £180 million during the first half of 2006 to £743 million during the first half of 2007. The highlights were our Dublin-domiciled European Growth Fund, which raised a net £599 million, and the Pan-European Equity Fund, which raised £156 million. These inflows took the size of New Star Global Investment Funds, our Dublin umbrella fund, to £2 billion at 30 June 2007.
Institutional funds
Our institutional business experienced net inflows of £156 million during the first half of 2007, taking its assets under management to approximately £9 billion. Highlights included significant inflows into specialist equity mandates from UK pension funds, life insurers and “open-architecture” investment groups.
The first half of 2007 was notable for a significant improvement in the investment performance of our international institutional business, which specialises in investing in Europe, Australasia and the Far East on behalf of mainly US and Canadian clients. Over the period, these mandates generated returns ahead of the benchmark MSCI EAFE Index.
Alternative assets
Within our alternative assets business, net inflows totalled £254 million over the first half of 2007, up from £72 million in the corresponding period last year. Performance in our hedge funds continued to be healthy, with 86% of our single-manager hedge fund assets in hedge funds in the top two quartiles relative to their Eurohedge peer groups over the half year. Since 30 June, trading conditions for the hedge fund industry have been difficult, particularly during the market turbulence in August. It is therefore creditable that during the eight months to 31 August the returns produced for investors from our nine hedge funds ranged from -1% to +15%.
In terms of hedge fund inflows, the highlight was the growth of our recently-launched closed-end fund, Hedge ETS. This is a unique security providing exposure to the RBC Hedge 250 Index, the most representative index of global hedge fund performance. During the half year, two offerings of new shares were made, raising £74 million and taking the size of Hedge ETS at 30 June to £160 million.
Our global property fund, marketed to institutions and wealthy individuals, ended the half year with invested assets and commitments of approximately $1 billion. The fund has invested in 12 properties in six locations.
During the half year, we were also able to realise our plans to add private equity as an additional asset class when we announced the merger of two closed-end private equity funds to create the New Star Private Equity Investment Trust. This trust is being managed as a fund of private equity funds and comprises investments in private equity limited partnerships and listed vehicles. The merger was completed in early July and, following a series of successful realisations over subsequent weeks, the trust's net asset value had risen to £74 million by 31 August.
Private clients
Our private client department experienced healthy inflows during the first half of 2007, with new mandates won from private OEIC, charitable, family trust and self-invested personal pension fund clients. The department's multi-asset class approach, accessing fund managers across the industry, provided resilience during equity market corrections in the early spring and summer.
Full listing and capital repayment
Fund management tends to be a cash-generative business. From our outset as a public company we have, therefore, made clear our intention to generate cash returns for shareholders commensurate with our earnings and cashflow while maintaining appropriate dividend cover and an appropriate balance sheet.
At the start of 2007, we said that in view of our strong cashflow we would return capital to our shareholders to improve the efficiency of our balance sheet. We also said New Star would graduate from the Alternative Investment Market (AIM) of the London Stock Exchange to a Full Listing in line with the commitment made at the time of our AIM admission in November 2005.
On 13 June, following a shareholders' meeting, dealings in our new fully-listed shares commenced. At the same time, following approval by the High Court, we returned £364 million in cash to our shareholders by way of a capital reduction. For every five of our old shares, shareholders received four new shares and 625p in cash. Our net indebtedness was £270 million at 30 June 2007.
Dividends
Your board has decided to pay an interim dividend of 4p per share. In line with the forecast contained in the prospectus for our Full Listing in April and in the absence of unforeseen circumstances, the board expects to recommend a total dividend for the year of not less than 9p per share.
The interim dividend will be paid on 31 October 2007 to shareholders on the register at 12 October 2007.
Current trading and prospects
For our clients, we strive to achieve superior investment performance and service levels. For our shareholders, we focus on delivering earnings growth and creating shareholder value. Unlike more specialised companies, we have concentrated on building a broad business covering a range of asset classes from equities, bonds and commercial property through to more specialist areas such as financials. We also have a diversified mix of clients ranging from small UK and overseas investors to global institutions and wealthy families. This means we are not overly reliant on any one product or client, with our largest fund and our largest client accounting for only single-figure percentages of net revenue.
Looking forward, in the mutual funds area, we aim to maintain a leading market position in net retail sales in the UK and to develop international sales in Continental Europe. We are expanding our hedge fund product range by recruiting experienced fund managers. We are selectively competing for specialist UK institutional mandates and developing our US institutional business.
We have maintained our strong UK retail sales momentum during the recent period of market turbulence. Net inflows into UK retail funds between 1 July and 26 September were £487 million, including £172 million of fund inflows from the Tilney transfer. We also continued to sell well relative to our rivals, with the IMA's latest figures showing New Star gaining a 14.80% share of UK net retail sales in July. Over the same period, there were net outflows of £291 million from our Dublin OEIC as some Continental European investors liquidated their positions. For the group as a whole net inflows from 1 July to 26 September were £226 million. Assets under management were £24.4 billion at 26 September against £24.7 billion at 30 June.
Having generated a substantial increase in profit for the first six months of 2007 in relatively benign market conditions, New Star has in recent weeks faced more challenging market conditions. We are, however, fortunate in having built a diversified business offering investment products covering a broad range of asset classes to retail and institutional investors both in the UK and internationally. Subject to markets not deteriorating, we remain robust about our prospects for the full year and expect to continue to generate growth from our well diversified product range in the medium term.
J L Duffield
27 September 2007
CONSOLIDATED INCOME STATEMENT
|
|
|
Six months ended 30 June 2007 |
Restated six months ended 30 June 2006 |
Year ended 31 December 2006 |
|
|
Notes |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
Revenue |
|
134,151 |
96,081 |
200,710 |
|
|
|
|
|
|
|
Fees and commissions |
|
(47,609) |
(33,816) |
(66,764) |
|
|
|
|
|
|
|
Net Revenue |
|
86,542 |
62,265 |
133,946 |
|
|
|
|
|
|
|
Operating expenses |
|
(38,477) |
(31,783) |
(61,934) |
|
|
|
|
|
|
|
Operating Earnings* |
|
48,065 |
30,482 |
72,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible amortisation |
|
(11,626) |
(11,626) |
(23,252) |
|
|
|
|
|
|
|
Exceptional IPO costs |
3 |
(2,388) |
- |
- |
|
|
|
|
|
|
|
Operating Profit |
|
34,051 |
18,856 |
48,760 |
|
|
|
|
|
|
|
Finance revenue |
|
1,561 |
1,011 |
1,890 |
|
|
|
|
|
|
|
Finance expense |
|
(737) |
(535) |
(631) |
|
|
|
|
|
|
|
Profit Before Taxation |
|
34,875 |
19,332 |
50,019 |
|
|
|
|
|
|
|
Taxation |
4 |
(9,316) |
(3,079) |
(10,577) |
|
|
|
|
|
|
|
Profit For The Period Attributable To Equity Holders Of The Parent |
|
25,559 |
16,253 |
39,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings per share (pence) * |
5 |
17.38 |
10.08 |
24.71 |
|
|
|
|
|
|
|
Basic earnings per share (pence) |
5 |
9.24 |
5.38 |
13.54 |
|
|
|
|
|
|
|
Diluted earnings per share (pence) |
5 |
9.23 |
5.38 |
13.54 |
|
|
|
|
|
|
* 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 2007 |
Restated 30 June 2006 |
31 December 2006 |
|
|
Notes |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Intangible assets |
|
42,136 |
65,388 |
53,762 |
|
Property and equipment |
|
3,267 |
2,649 |
3,312 |
|
Financial assets |
|
5,113 |
7,884 |
11,815 |
|
Deferred tax |
|
824 |
3,998 |
1,421 |
|
Trade and other receivables |
|
6,579 |
9,497 |
9,292 |
|
|
|
57,919 |
89,416 |
79,602 |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
Trade and other receivables |
|
139,489 |
77,510 |
95,661 |
|
Financial assets |
|
691 |
4,673 |
3,900 |
|
Cash and cash equivalents |
|
30,492 |
27,267 |
19,237 |
|
|
|
170,672 |
109,450 |
118,798 |
|
|
|
|
|
|
|
Total assets |
|
228,591 |
198,866 |
198,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
|
(143,543) |
(78,262) |
(85,559) |
|
Current tax |
|
(4,488) |
(3,820) |
(4,793) |
|
|
|
(148,031) |
(82,082) |
(90,352) |
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Long-term borrowings |
7 |
(296,168) |
- |
- |
|
Trade and other payables |
8 |
(2,961) |
(2,589) |
(2,335) |
|
Provisions |
|
(111) |
(140) |
(129) |
|
|
|
(299,240) |
(2,729) |
(2,464) |
|
|
|
|
|
|
|
Total liabilities |
|
(447,271) |
(84,811) |
92,816 |
|
|
|
|
|
|
|
Net assets |
|
(218,680) |
114,055 |
105,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
9 |
58,445 |
15,618 |
14,541 |
|
Share premium |
|
- |
187 |
257 |
|
Capital redemption reserve |
|
- |
38 |
1,119 |
|
Retained earnings |
10 |
122,776 |
114,956 |
110,933 |
|
Other reserves |
10 |
(406,510) |
1,460 |
(407) |
|
EBT reserve |
10 |
6,609 |
(18,204) |
(20,859) |
|
Equity attributable to equity holders of the parent |
10 |
(218,680) |
114,055 |
105,584 |
|
|
|
|
|
|
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
|
|
|
Six months ended 30 June 2007 |
Restated Six months ended 30 June 2006 |
Year ended 31 December 2006 |
|
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
Profit for the period |
|
25,559 |
16,253 |
39,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value movement on available for sale assets |
|
848 |
- |
(1,469) |
|
|
|
|
|
|
|
Exchange movement on translation of foreign operations |
|
(648) |
133 |
(265) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(expense) recognised directly in equity |
|
200 |
133 |
(1,734) |
|
|
|
|
|
|
|
Total recognised income and expense for the period |
|
25,759 |
16,386 |
37,708 |
|
|
|
|
|
|
CONSOLIDATED CASH FLOW STATEMENT
|
|
|
Six months ended 30 June 2007 |
Restated Six months ended 30 June 2006 |
Year ended 31 December 2006 |
|
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
Cash flow from operating activities |
|
|
|
|
|
Profit after tax |
|
25,559 |
16,253 |
39,442 |
|
Depreciation charges |
|
530 |
344 |
791 |
|
Amortisation of intangible assets |
|
11,626 |
11,626 |
23,252 |
|
Share-based element of remuneration |
|
360 |
874 |
1,689 |
|
Net finance income |
|
(824) |
(476) |
(1,259) |
|
Income tax expense |
|
9,316 |
3,079 |
10,577 |
|
|
|
46,567 |
31,700 |
74,492 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
Decrease/(increase) in financial assets |
|
3,209 |
(3,578) |
(2,805) |
|
Increase in trade and other receivables |
|
(45,951) |
(22,546) |
(37,345) |
|
Increase in trade and other payables |
|
59,608 |
24,397 |
28,475 |
|
Net cash flow from operating activities before taxation |
|
63,433 |
29,973 |
62,817 |
|
Taxation paid |
|
(9,024) |
(1,908) |
(5,857) |
|
Net cash flow from operating activities |
|
54,409 |
28,065 |
56,960 |
|
|
|
|
|
|
|
Cash flow from investing activities |
|
|
|
|
|
Purchase of investments |
|
(8,190) |
(600) |
(6,000) |
|
Proceeds from the sale of investments |
|
15,498 |
- |
- |
|
Purchase of property and equipment |
|
(482) |
(389) |
(1,504) |
|
Proceeds from sale of tangible fixed assets |
|
- |
- |
5 |
|
Net cash flow from investing activities |
|
6,826 |
(989) |
7,499 |
|
|
|
|
|
|
|
Cash flow from financing activities |
|
|
|
|
|
Proceeds from the issue of share capital |
|
1,686 |
200 |
274 |
|
Movements in EBTs' reserves |
|
27,468 |
(144) |
(2,837) |
|
Repayment/(payment) of tax loans to employees |
|
2,713 |
3 |
(586) |
|
Repayment of long-term borrowing |
|
- |
(9,298) |
(9,298) |
|
Repayment of short-term borrowing |
|
- |
(9,758) |
(9,758) |
|
Finance income received |
|
1,844 |
1,347 |
2,442 |
|
Finance expense paid |
|
(4,587) |
(349) |
(526) |
|
Receipts from long term borrowing |
|
300,000 |
- |
- |
|
Repayment of capital to shareholders |
|
(364,971) |
- |
- |
|
Purchase and cancellation of shares |
|
- |
(2,699) |
(19,422) |
|
Dividends paid |
|
(14,076) |
- |
(11,340) |
|
Net cash flow from financing activities |
|
(49,923) |
(20,698) |
(51,051) |
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
11,312 |
6,378 |
(1,590) |
|
|
|
|
|
|
|
Cash and cash equivalents at start of year |
|
19,237 |
21,092 |
21,092 |
|
|
|
|
|
|
|
Exchange movements |
|
(57) |
(203) |
(265) |
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
30,492 |
27,267 |
19,237 |
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