Unaudited Interim Results

Polar Capital's Assets under Management grew by 4% over the period,

from £21.9bn to £22.7bn and given the positive outlook for the business,

the first interim dividend per share was maintained at 14.0p."

Gavin Rochussen, CEO

Highlights

• Assets under Management (AuM) at 30 September 2024 up 4% to £22.7bn (31 March 2024: £21.9bn) and at 8 November 2024 £23.9bn
• Net inflows of £472m during the period (six months to 30 September 2023: outflows of £581m)
• Core operating profit† up 21% to £27.3m (30 September 2023: £22.5m)
• Profit before tax up 9% to £23.1m (30 September 2023: £21.1m)
• Basic earnings per share up 7% to 17.3p (30 September 2023: 16.2p) and adjusted diluted total earnings per share† up 42% to 24.5p (30 September 2023: 17.2p)
• Interim dividend per ordinary share of 14.0p (January 2024: 14.0p) declared to be paid in January 2025. The dividend payment date is 10 January 2025, with an ex-dividend date of 12 December 2024 and a record date of 13 December 2024.

Gavin Rochussen, Chief Executive Officer, commented:

"It has been a positive start to the new financial year with net inflows over six months reaching £472m and market movement and fund performance contributing a further £323m to asset growth. This has seen our AuM rise 4% to £22.7bn at the end of the reporting period, and more recently, AuM has increased further to £23.9bn as at 8 November 2024. Notable successes have been the Emerging Markets & Asia strategies which saw net inflows of £929m over the period following strong investor demand.

"Performance has also been pleasing. Across the Polar Capital UCITS fund range, which represents 75% of the Group's total AuM, 90% of AuM is in the top two quartiles of the appropriate Lipper peer group over one year to 30 September 2024. 77% of AuM is in the top two quartiles over three years, 97% over five years and 99% since inception. Since inception to 30 September 2024, 91% of AuM is in the first quartile against the Lipper peer group.

"The Healthcare suite of funds has performed well against benchmark and against the Lipper peer group and has attracted net inflows into the Healthcare Opportunities and Biotech Funds of £144m and £77m respectively.

"The Polar Capital Global Insurance and Japan Value Funds delivered strong returns, with respective net inflows of £29m and £22m over the past six months.

"Relative to the comparable six-month period to 30 September 2023, average AuM increased by 15% from £19.4bn to £22.4bn. The increase in average AuM resulted in net management fees increasing by 15% to £87.6m from £76.5m in the comparable prior six-month period.

"Core operating profit† increased by 21% to £27.3m compared to the comparable prior half year.

"The Board has declared an interim dividend of 14.0p to be paid in January 2025 (January 2024: 14.0p).

"There has been further recognition of our specialist funds with Polar Capital winning the Emerging Markets Manager of the Year Award in the European Pensions Awards 2024. Given the strategic focus on growing the client base in the US, it is pleasing that Morningstar have upgraded the Emerging Markets Stars US 40 Act mutual fund from a Bronze to a Silver rating, driven by increased conviction in our investment team.

"In September 2024, we were pleased to announce the launch of the US domiciled Polar Capital International Small Company Fund with Dan Boston as Lead Manager. International expansion remains a key part of our 'Growth with Diversification' strategy and this launch represents an important strategic milestone.

"Looking ahead, visibility on actively managed equity flows for the industry remains unclear. However, given our compelling long-term investment performance and remaining capacity in a broad range of active, specialist and differentiated thematic, sector and regionally focused fund strategies, we are confident that we can continue to perform for our clients and shareholders over the long term."

* The International Small Company Fund was launched on 30 September 2024 and its closing AuM was £7m.

Chief Executive's Report

Market Overview

The first half of Polar Capital's financial year ended on a strong note in both equity and bond markets. The 10-year US government bond yield ended September 2024 at 3.8%, having been very close to 5.0% almost a year earlier. Equity markets also moved higher, consistently in the case of the US, where growth is moderating, and explosively in the case of China, where a package of economic stimulus measures was announced right at the end of September 2024.

The Chinese equity market has moved from being one of the most disliked investment destinations for international investors to one of the most discussed, as investors have closed short positions. The Chinese market is undeniably cheap, even versus the rest of Asia, but the economy still has structural problems. The cheap manufacturing model has been gradually undermined by higher wages and by overcapacity, consumers have not been spending as freely as before, despite their high savings ratio, and the private sector arguably still needs greater freedom. These problems may be too complex to be solved simply with an interest rate cut, but the apparent willingness of the Chinese authorities to support assets such as real estate and equities could restore consumer confidence.

There have been eye-catching moves in other assets too. The oil price has often been a hedge in times of geopolitical stress. It fulfilled this role after the Russian invasion of Ukraine in 2022 but has performed less well during the current Middle East conflict. Perhaps the expansion of alternative energy sources, and most recently the re-emergence of nuclear power, have played a part. Also, the US is now a net exporter of oil, making Middle Eastern oil supply somewhat less critical.

The gold price is benefiting not just from concern about worldwide war and conflict, but also from demand for jewellery in India and China and their central banks buying gold. Indian gold imports have just hit record levels as the government has cut import duties. Gold has traditionally been a good insulator against the extremes of inflation and recession, but it is unusual for the gold price to outperform a rising US equity market.

Fund Performance

Equity markets have continued to make progress over the six-month period. The technology sector has performed well, and China's strong rally in September 2024 left the previously underperforming Emerging Markets on a par with other regions year-to-date. Some European markets, and the UK in particular, continue to suffer from lower economic growth, and from a less vibrant corporate sector.

Two structural factors, namely benchmark index concentration, and the underperformance of smaller companies versus broad markets, remain influential. There is a well-documented inverse relationship between index concentration and the relative performance of active managers; when individual companies become very large index constituents, fund concentration rules make it more difficult for managers to capitalise. This has made it particularly hard for Polar's technology funds to deliver returns in excess of their benchmarks.

The underperformance of smaller companies versus large peers has also made life more difficult for some of Polar Capital's strategies in the period, specifically Polar Capital's North American and European Opportunities strategies. Smaller companies have tended to perform less well in periods of high or rising interest rates, as they tend to have more floating rate debt. Nevertheless, small and mid-cap companies have been a rich source of investment ideas in the past, and history suggests that index concentration, currently at a high level, does mean revert. These factors will not remain headwinds forever.

Other teams at Polar Capital have delivered good results in the period. Polar Capital's Healthcare Opportunities Fund, and its Financials Funds, both long-standing areas of strength in thematic investing at Polar Capital, have delivered good results. Healthcare Opportunities was an early investor in some of the smaller beneficiaries of the GLP-1 category of obesity medication, which has been beneficial, and the financials team has been successful recently both in banks and non-bank financials.

Polar Capital's UK Value strategy has capitalised on the recent outperformance of the FTSE 250 versus the FTSE 100, finding enduring success stories in mid-sized UK companies, while the Polar Capital China Stars Fund, the Japan Value strategy, and the Polar Capital Europe ex-UK Income Fund also outperformed their respective benchmarks in the six-month period under review.

Across the Polar Capital UCITS fund range, which represents 75% of the Group's total AuM, 90% of AuM is in the top two quartiles of the appropriate Lipper peer group over one year to 30 September 2024. 77% of AuM is in the top two quartiles over three years, 97% over five years and 99% since inception. Since inception to 30 September 2024, 91% of AuM is in the top quartile against the Lipper peer group.

Against the backdrop of highly concentrated indices, as at the end of September 2024, 44% of UCITS AuM has outperformed the benchmark over one year, 39% exceeded the benchmark over three years, 39% was ahead over five years and 88% outperformed the benchmark since inception.

AuM and Fund Flows

Broadridge Fund Data indicate that in the period May 2024 to August 2024 across Europe and the UK, active equity funds have been in outflow with net inflows into passive equity funds. Flows into fixed income instruments have dominated net inflows for the period November 2023 to August 2024. The past six months have been challenging for active equity managers.

In the six months to 30 September 2024, AuM increased from £21.9bn to £22.7bn, an increase of 4% over the period. The £795m increase in AuM comprised net inflows of £472m and an increase of £323m related to market movement and fund performance.

In the six months, our Emerging Market and Asia Stars fund range received net inflows of £929m despite muted investor interest in emerging markets equities. The significant net inflows were almost entirely a consequence of gaining market share from peer emerging market equity managers.

The Healthcare suite of funds has performed well against benchmark and against the Lipper peer group and has attracted net inflows into the Healthcare Opportunities and Biotech Funds of £144m and £77m respectively. However, this was partially offset by separate account mandate trimming of £96m and £40m relating to the redemption of the fixed life preference shares linked to Polar Capital Global Healthcare Trust.

The Polar Capital Global Insurance Fund continued its excellent performance and is up 22% year to date in absolute terms and ahead of benchmark by 3% over the same period while 18% up in absolute terms annualised over three years and ahead of benchmark by 3% annualised over three years. Since the Fund's inception in 1998 it is ranked at the 4th percentile against the Lipper peer group as at 30 September 2024. The Fund had net inflows of £29m in the six months to 30 September 2024.

The Polar Capital Japan Value Fund is 15th percentile since inception against the Lipper peer group and has returned 16% annualised over three years beating the benchmark by 4% on an annualised basis over three years. The Fund had net inflows of £22m in the six-month period.

While interest in the Polar Capital Artificial Intelligence Fund continued with net inflows of £82m in the period, net outflows from the open-ended Polar Capital Technology Fund were £243m and share buy backs by the Polar Capital Technology Investment Trust amounted to £59m in the period.

The Polar Capital Smart Energy Fund and a related separate account mandate suffered net outflows of £50m in the six months as a result of muted investor appetite for sustainable funds.

Continued negative investor sentiment towards UK and European equities led to redemptions from the Melchior European Opportunities Fund of £64m and the trimming of a separate account mandate of £38m. The Polar Capital European ex-UK Income Fund had net outflows of £21m and the Polar Capital UK Value Opportunities strategy had net outflows of £11m in the six months. While the Polar Capital European Forager Fund had net redemptions of £4m during the period, a significant long-term investor in the fund redeemed £84m in October 2024 as a consequence of asset allocation and reorganisation of the client's fund structure. This led to the decision by the Board of the Forager fund to liquidate the Fund and return capital to all clients at the same time.

The Polar Capital North American Fund continued to suffer net outflows as performance was challenging given the high stock concentration in the indices and continuing competition from passive US equity funds. Net outflows from the fund in the six months were £104m.

The Polar Capital Global Convertible Bond funds experienced outflows of £60m, given the higher interest environment with investors seeking yield from lower risk asset classes such as money market funds.

Financial Results

Average AuM over the six months to 30 September 2024 increased by 13% from the preceding six months, rising from £19.9bn to £22.4bn. However, relative to the comparable six-month period to 30 September 2023, average AuM increased by 15% from £19.4bn to £22.4bn. The increase in average AuM resulted in net management fees† increasing by 15% to £87.6m from £76.5m in the comparable prior six-month period. Management fee yield margin† declined, as anticipated, by 1bp to 78bps over the period compared to the comparable prior half-year period.

Total operating costs increased by 22% to £67.3m compared to the comparable prior half-year period, primarily due to higher variable compensation costs and impairment of goodwill.

Core operating profit† increased by 21% to £27.3m compared to the comparable prior half-year period and is up by 22% from £22.3m in the preceding six-month period to 31 March 2024.

Profit before tax increased by 9% to £23.1m compared to the comparable prior half-year. Basic EPS increased by 7% compared to the half year period to 30 September 2023. Exceptional items of £6.0m included an impairment of the goodwill from the acquisition of Dalton Strategic Partnership LLP.

Adjusted diluted core EPS† of 20.5p for the current period ending 30 September 2024 represents an 18% increase over the comparable prior half-year period ending 30 September 2023.

† The non-GAAP alternative performance measures shown here are described and reconciled in the APM section below.

* A reconciliation to reported results is given in the APM section below.

The Board has declared an interim dividend of 14.0p to be paid in January 2025 (January 2024: 14.0p). Maintaining last year's first interim dividend of 14.0p represents a covered dividend that is 68% of first half adjusted diluted core EPS compared to the prior comparable period when the dividend represented 81% of adjusted diluted core EPS. This reflects the improving results and our confidence in the business and the strength of our balance sheet.

Strategic progress

In September 2024, we were pleased to announce the launch of the US domiciled Polar Capital International Small Company Fund with Dan Boston as Lead Manager. Dan brings 19 years' experience to his role and now heads our US-based and newly established Global Small Company team. The team takes a 'research first' approach to seeking out wealth creating smaller companies with the ability to compound over the long-term and become industry leaders. International expansion remains a key part of our 'Growth with Diversification' strategy and this launch represents an important strategic milestone.

There has been further recognition of our specialist funds with Polar Capital winning the Emerging Markets Manager of the Year Award in the European Pensions Awards 2024. Given the strategic focus on growing the client base in the US, it is pleasing that Morningstar have upgraded the Emerging Markets Stars US 40 Act mutual fund from a Bronze to a Silver rating, driven by increased conviction in our investment team. The Polar Capital Global Insurance Fund won the Specialist Equities category at the Investment Week Fund Manager of the Year Awards 2024. Polar Capital Emerging Markets Stars Fund has been shortlisted for Best Sustainable Emerging Markets Fund at the Investment Week Sustainable Investment Awards 2024 and Polar Capital Smart Energy Fund has been shortlisted for Best ESG Investment Fund at the ESG Investing Awards 2024. Both Polar Capital Global Healthcare Trust and Polar Capital Technology Trust have been shortlisted in the specialist sector at the Investment Week Investment Company of the Year Awards 2024. Polar Capital Global Healthcare Trust has been shortlisted for 'Sector Performance Award' at Citywire Investment Trust Awards 2024.

As always, we are grateful for the commitment and dedication from our staff over the period as we have seen a recovery in net inflows, improved fund performance and increased profitability. We are also appreciative of the ongoing support from our loyal and supportive clients and shareholders.

Outlook

While the conflict in Ukraine and the Middle East still brings uncertainty, inflation across the world has been falling and many Central Banks have now started to cut interest rates. This may create a better backdrop for risk assets. Investors remain cautious and many opt to retain high cash balances as current uncertain conditions play out. UK based investors have been particularly cautious leading up to and following the Autumn Budget.

Given our compelling long-term investment performance and remaining capacity in a broad range of active, specialist and differentiated thematic, sector and regionally focused fund strategies, we are confident that we can continue to perform for our clients and shareholders over the long term.

Gavin Rochussen

Chief Executive

Alternative Performance Measures (APMs)

The Group uses the non-GAAP APMs listed below to provide users of the Interim Report with supplemental financial information that helps explain its results for the current accounting period.

Summary of non-GAAP financial performance and reconciliation of APMs to reported results

The effect of the adjustments made in arriving at the adjusted diluted total EPS and adjusted diluted core EPS figures of the Group is as follows:

Exceptional items

Exceptional items for the period to 30 September 2024 include amortisation of the acquired intangible asset as part of Dalton acquisition and related impairment charge on the goodwill (2023: Exceptional items relate to amortisation of the intangible assets).

A breakdown of exceptional items is as follows:

All of the items in the above statements are derived from continuing operations.

Interim Consolidated Balance Sheet

As at 30 September 2024

Selected notes to the Unaudited Interim Consolidated Financial Statements

For the six months to 30 September 2024

• General information, Basis of Preparation and Accounting policies

Corporate information

Basis of preparation

The unaudited interim condensed consolidated financial statements to 30 September 2024 have been prepared in accordance with IAS 34: Interim Financial Reporting.

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 March 2024, which have been prepared in accordance with UK-adopted international accounting standards and in conformity with the requirements of the Companies Act 2006.

The accounting policies adopted, and the estimates and judgements used in the preparation of the unaudited interim condensed consolidated financial statements are consistent with the Group's annual financial statements for the year ended 31 March 2024, except when otherwise stated.

The unaudited interim condensed consolidated financial statements are presented in Sterling and all values are rounded to the nearest thousand (£'000), except when otherwise stated.

Group information

The Group is required to consolidate seed capital investments where it is deemed to control them. The operating subsidiaries consolidated at 30 September 2024 are consistent with those reported in the 31 March 2024 annual report, with the following additions: the Polar Capital Emerging Markets Healthcare Fund (a sub fund of Polar Capital Fund plc), consolidated as of 31 May 2024, and the Polar Capital International Small Company Fund (a US 40-Act mutual fund), consolidated as of 30 September 2024.

Going concern

The Directors have made an assessment of going concern taking into account both the Group's results as well as the impact of the Group's outlook. As part of this assessment the Directors have used a range of information available to the date of issue of these interim consolidated financial statements and considered the Group budget, longer term financial projections including stress testing scenarios applied as part of the Group's ICARA, cash flow forecasts and an analysis of the Group's forecasted liquid assets and its regulatory capital position.

The Group continues to maintain a robust financial resources position, access to cashflow from ongoing investment management contracts and the Directors believe that the Group is well placed to manage its business risks. The Directors also have a reasonable expectation that the Group has adequate resources to continue operating for a period of at least 12 months from the date of approval of the interim consolidated financial statements. Therefore, the Directors continue to adopt the going concern basis of accounting in preparing the interim consolidated financial statements.

Revenue

• This balance includes impairment of goodwill amounting to £5.4m recognised in the current period.
• Auditors' remuneration:

On 2 August 2024, the Group paid a second interim dividend for 2024 of 32p (2023: 32p) per ordinary share.

Share-based payments

In November 2024, the Convertibles team called for a partial conversion of preference shares into Polar Capital Holdings equity (30 September 2023: No conversion).

At 30 September 2024 five sets of preference shares (30 September 2023: five sets) have the ability to call for conversion.

Number of ordinary shares to be issued against converted preference shares:

Amortisation and impairment of intangible assets are treated as exceptional items.

Goodwill

An impairment test was conducted at the period end to compare the carrying amount of the CGU with its recoverable amount. The recoverable amount was determined using a value-in-use calculation based on a discounted cash flow model, incorporating the CGU's projected cash flows over a five-year period.

Key assumptions, including the discount rate and growth rate, remained consistent with those used in the 31 March 2024 annual report. However, given the increased outflows in the CGU during the current period and prevailing investor sentiment and outlook, the five-year projected cash flows were reviewed and adjusted as of the period end.

This analysis indicated that the recoverable amount of the CGU was lower than its carrying value, resulting in an impairment charge of £5.4m against goodwill.

The table below sets out the impacts of reasonably possible changes in key estimates and judgements used in the discounted cash flow model:

Intangible assets

amortisation period.

Financial Instruments

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

At the end of both the current period as well as the comparative period, all financial instruments at fair value through profit or loss held by the Group were Level 1 except for:

The fair value hierarchy of financial assets and liabilities which are carried at fair value at the period end is as follows:

The fair value of financial instruments not held at fair value approximates to their carrying value as at reporting date. During the reporting period there were no transfers between levels in fair value measurements.

Cash flows generated from operations

A reconciliation of profit before tax to cash generated from operations is as follows:

• Movement includes those arising from acquiring and/or losing control of consolidated seed funds.
• Contingent liabilities

There are no contingent liabilities to disclose at 30 September 2024 (31 March 2024: nil).

Related party transactions

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not included in this Note. All related party transactions during the period are consistent with those disclosed in the Group's annual financial statements for the year ended 31 March 2024 and have taken place on an arm's length basis.

The Publication of Non-Statutory Accounts

The financial information contained in these unaudited interim consolidated financial statements for the period to 30 September 2024 does not constitute statutory accounts as defined in s434 of the Companies Act 2006. The financial information for the six months ended 30 September 2024 and 2023 has not been audited. The information for the year ended 31 March 2024 has been extracted from the latest published audited accounts, which have been filed with the Registrar of Companies. The audited accounts filed with the Registrar of Companies contain a report of the independent auditor dated 26 June 2024. The report of the independent auditor on those financial statements contained no qualification or statement under s498 of the Companies Act 2006.