Tuesday 22 September 2015

Charlemagne Capital Limited
Results for the six months to 30 June 2015

Financial Summary

·      Group AuM US$2.1 billion as at 30 June 2014, down 7.3% since 1 January 2015

·      Net management fees down 14.4% on the prior year period

·      Exceptional tax credit of US$3.2 million received during the period

·      Profit after tax and non-controlling interests US$2.8 million

·      Operating profit US$0.1 million compared with US$1.2 million in prior year period

·      Interim dividend of 0.5 US cents per share declared and paid during the period in respect of the year ended 31 December 2014

·      The Group has declared an interim dividend of 0.5 US cents per share (2014: 0.5 US cents) in respect of the half year to 30 June 2015

·      Net assets attributable to shareholders of US$25.7 million (December 2014: US$24.3 million) includes cash and cash equivalents of US$17.7 million and current asset investments of US$10.1 million.

Jayne Sutcliffe, Chief Executive, commented:

"Emerging markets ended the period under review little changed after a volatile six months.  However, the subsequent period has seen renewed weakness in the asset class, with stock prices and currencies falling and assets leaving the sector at an accelerating rate.  While the poor performance of EM equities over recent years has been driven largely by earnings and growth disappointments, this most recent fall has been caused by renewed concern about the timing and extent of the first increase in US Fed Funds rate and the state of the Chinese economy.

"In spite of this challenging backdrop, Charlemagne's investment performance in the first half of the year has been good, with three of our Magna strategies delivering top quartile performance, with none in the bottom quartile, and I am delighted that, as a consequence, we have been able secure two significant new mandate wins for our MENA and LatAm strategies.

"Over the longer term, almost all of our strategies have produced strong relative performance, which should leave us in a good position when sentiment and flows reverse. We are optimistic that our strong performance will continue, especially once markets revert, to rewarding the well-managed, consistently profitable quality companies, which are the focus of our research."

Enquiries:

Charlemagne Capital          

Jayne Sutcliffe, Chief Executive - Tel. 020 7518 2100

Lloyd Jones, Finance Director - Tel. 01624 640200

N+1 Singer - Tel. 020 7496 3000

Nic Hellyer

Richard Salmond

James Maxwell   

Smithfield Consultants - Tel. 020 7360 4900

John Kiely

Ged Brumby         

Financial Summary

The results and the assets and liabilities of the Group for the current and comparative interim periods along with the last full financial year (extracted from the audited financial statements) are set out below in summary:-

Assets under Management ("AuM")

The table below sets out the Group's AuM as at 30 June 2015 and the movements experienced in each product range in the period since 1 January 2015.

Note: Closing AuM is stated as including all subscription and redemption orders received for the relevant funds as at the close of the period but not processed until the first dealing date of the following period.

Chief Executive's Report

Emerging markets ended the period under review little changed after a volatile six months.  However, the subsequent period has seen renewed weakness in the asset class, with stock prices and currencies falling and assets leaving the sector at an accelerating rate.  As we write, emerging markets (EM) are down double-digits year to date (-13.97% as at 15 September), as measured by the MSCI EM index, with falls in all of the main regions and markets.  Total outflows from EM equity funds have reached over $50bn so far in 2015, following $27bn and $29bn in the previous two years.  This year's number sets a new record, exceeding even the 2008 figure.  While the poor performance of EM equities over recent years has been driven largely by earnings and growth disappointments, this most recent fall has been caused by renewed concern about the timing and extent of the first increase in US Fed Funds rate - which has led to further weakness in EM currencies - and the state of the Chinese economy

Charlemagne's investment performance in the first half of the year was good.  Of the eight Magna strategies, three were in the top quartile according to FactSet Morningstar and none in the bottom 25%: this has continued into the second half, to the end of August.  This performance is in spite of a market environment in which high return on equity stocks - the types of assets we tend to favour - have underperformed.  In the longer term, almost all of our strategies have produced strong relative performance, which should leave us in a good position when sentiment and flows reverse. Over the last three years, seven out of the eight Magna funds were in the top half of their peer group, which in no small part can be attributed to our strong, experienced and stable investment team.  We are optimistic that our strong performance will continue, especially once markets revert to rewarding the well-managed, consistently profitable quality companies which are the focus of our research. 2015 continues to pose challenges for the OCCO Eastern European Fund; nonetheless we are pleased that the fund has returned positive performance for the year to date despite the generally negative market environment. 

Against this challenging backdrop within EM, we are pleased to report two new mandate wins.  One, which was funded in the summer, from a continental European asset manager, is for our Middle East and North African (MENA) strategy while the other, from a Scandinavian pension fund, is for Latin America.  Both of these are areas in which we have demonstrated strong, consistent long term investment performance.

The Group's assets under management ("AuM") declined by just over 7% in the first 6 months, predominantly due to the rebalancing of an existing institutional mandate which also had a large cross holding in Magna.  In total the reduction in this mandate accounted for an outflow of US$182 million.  The Magna Emerging Markets Dividend Fund continued to enjoy net positive subscriptions and, excluding the above, Magna would have posted a net positive inflow overall for the period.  OCCO AuM has remained stable with new monies largely replacing redemptions in the period.  In the period since the half year end, in spite of significant market declines, the Group has seen overall positive net inflows.

The average level of AuM during the period was US$2.2 billion compared with US$2.7 billion in the prior year period.  Net management fees receivable were US$ 10.7 million compared with US$ 13.4 million for the previous six months and US$ 12.5 million for the comparable period in 2014, reflecting the decrease in AuM during the period.  Net crystallised performance fees in the period were US$ 0.7 million (2014: US$ 0.3 million) and accruing (non crystallised) performance fees for 2015 as at 31 August are US$ 1.5 million compared with US$ 1.2 million as at the same date in 2014.  Operating profit for the six month period was US$ 0.05 million (2014: US$ 1.2 million) and profit attributable to shareholders was US$ 2.76 million (2014: US$ 0.33 million) following the receipt of an exceptional tax credit of US$ 3.2 million.  Profit after tax attributable to shareholders represents earnings per share of 0.94 US cents for the period.  Negative market performance since June has inevitably impacted Group AuM, in spite of net inflows during the period.  Group AuM at the end of August is US$ 1.9 bn.  This level of AuM is below break-even on a recurring fee basis.  In the absence of significant performance fees at year end this would mean an operating loss being generated for the year as a whole and a reduced level of net profit after tax. The Group still has a strong balance sheet and is able to maintain the interim dividend at same level as last year and therefore the Directors have declared an interim dividend of 0.5 US cents per share.

With the benefit of hindsight, it has been right to have been bearish on EM in the last four years.  For many investors, the early part of that period was characterised by 'wait and see'.  In the last two years, by contrast, the flow figures paint a different picture, one of a flow of investors consecutively throwing in the towel.  This suggests that a lot of the weaker holders are now out of the asset class.  Figures support the view that investors are now underweight EM and that cash positions within EM funds are at historically high levels.  Sentiment indicators, which have been consistently good contrarian indicators over the last 15 years, also flag that this is an opportune entry point.

Emerging markets have always been an inefficient asset class.  The existence of a large number of companies, many of them small and midcap names with limited research coverage; investors with short term attention spans and memories; significant shareholdings and other forms of involvement from the public sector; and the differing levels of capital markets development in these economies are all potential sources of inefficiency and therefore of alpha.

We firmly believe that there are few organisations better equipped to profit from these inefficiencies for investors and shareholders as Charlemagne Capital, with our years of specialist experience, strong investment performance, an investment process which we consider durable, and of a scale which enables us to capture opportunities in small and midcap stocks as well as in larger companies in emerging markets.

Jayne Sutcliffe

Chief Executive

22 September 2015

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Statement of Cash Flows

Notes to the Condensed Consolidated Interim Financial Statements

1.                    Basis of Preparation and Significant Accounting Policies

The condensed consolidated interim financial statements have been prepared on a condensed basis, in accordance with the requirements of International Accounting Standard 34 "Interim Financial Reporting".  They do not include all of the information required in annual financial statements in accordance with IFRS and where appropriate should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2014.

The condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 31 December 2014.

The condensed consolidated interim financial statements are prepared on the historical cost basis except that the following are stated at their fair value: financial instruments at fair value through profit or loss including derivative financial instruments.  Recognised assets and liabilities that are hedged are stated at fair value in respect of the risk that is hedged. 

2.             Segment Reporting

3.             Taxation

Income tax expense is recognised in each interim period based on the best estimate of the weighted average annual income tax rate expected for the full financial year.  Amounts accrued for income tax expense in one interim period may be adjusted in a subsequent period of that financial year if the estimate of the effective rate of income tax changes. 

As reported in the consolidated financial statements of the Group for the year ended 31 December 2014, the Group, in consultation with the beneficiaries of the Charlemagne Employee Benefit Trust (the "EBT"), had commenced discussions with HMRC with a view to taking advantage of the beneficial terms offered under the published EBT Settlement Opportunity arrangement.  A formal agreement was entered into on 23 March 2015 and all potential issues of significance have now been resolved.  Under the terms of the settlement agreement contributions to the Charlemagne Employee Benefit Trust made in previous years have now been allowed as a deduction from taxable income in respect of those years of assessment resulting in the amount of tax recovered shown above.

4.             Dividends

An interim dividend of 0.5 US cents (GB 0.3393p) (2014: 1.0 US cents, GB 0.6014p) per ordinary share in respect of the year ended 31 December 2014 was paid on 24 April 2015 to those shareholders on the register on 27 March 2015 and was charged to the income statement in 2015. 

The Group has declared an interim dividend of 0.5 US cents (GB 0.3209p) in respect of the half year to 30 June 2015.

5.             Receivables

6.             Accounts Payable, Accruals and Other Payables

7.             Issued Share Capital

The company did not issue at shares (2014: 10,500,000) during the six months to 30 June 2015.   

As at the date of issuing the financial statements there were 290,885,616 ordinary shares of US$0.01 each issued and fully paid.

Included within share capital at 30 June 2015 are 1,238,736 shares (December 2014:  1,581,974) which are held on behalf of a subsidiary of the Company.  These are accounted for as treasury shares and are included as a debit reserve within equity.

8.             Earnings per Share

The calculation of basic earnings per share of the Group is based on the net profit attributable to shareholders for the six months to 30 June 2015 of US$2.757m (2014: profit of US$0.326m) and the weighted average number of shares of 290,885,616 (2014: 290,073,461) in issue during the period.

The calculation of diluted earnings per share of the Group includes the effect of those outstanding share options where specified performance conditions have been satisfied but which have not yet vested.  The calculation of diluted earnings per share of the Group is based on the net profit attributable to shareholders for the six months to 30 June 2015 of US$2.757m (2014: profit of US$0.326m) and the weighted average number of shares of 294,850,476 (2014: 299,115,967) in issue during the period.

9.             Share Based Incentive Plans

During the period the Group did not issue any new share based incentive programmes to its employees and none of the previously granted options vested or expired.

Equity Settled

At the beginning and end of the period there were 3,978,063 share options outstanding with a weighted average exercise price of GBP0.004.

Cash Settled

There were no cash settled awards in existence during the period.

Other incentive plans

During the year ended 31 December 2014, awards of shares in the Magna Global Emerging Markets Fund ("the Fund") were issued to certain employees subject to the vesting conditions set out below. The fair value of the awards granted is spread over the vesting period, and recognised as an expense in the accounts with a corresponding increase in liabilities.  The fair values of the awards were measured at grant date by reference to the cost of the equivalent number of shares acquired by the Company with the intention that they would be held and utilised to settle these awards as they vested.

The total number of shares subject to the award was 164,468.112 with 100% of the shares allocated to each employee vesting upon three years' service provided that the Fund outperforms the MSCI Emerging Market Index (USD) ("the benchmark") by 1% to 2.99% per annum over the whole life of the award.  If the Fund outperforms the benchmark by 3% or more, 110% of the shares subject to the award vest but if the Fund's performance is less than the benchmark plus 0.99%, then 80% of the shares subject to the award vest.

The amount charged as an expense during the 6 months to June 2015 in respect of these awards is US$468,283.

Expenses in respect of share based incentive plans

The following amounts have been charged as an expense within these financial statements:

10.           Financial Instruments - Fair Values

a)         Accounting Classification and Fair Values

The following table shows the carrying amounts and fair values of financial assets and financial assets and financial liabilities, including their levels in the fair value hierarchy.

b)            Measurement of Values

i)          Valuation techniques

The valuation technique applied to level 2 financial instruments is based on the net asset value per share of the relevant investments which are published by their appointed custodian.

Level 3 financial assets consist solely of investments in a private company.  The fair value of this investment is determined based on the most recent net assets of the company.

There have been no changes to the valuation techniques used during the period.

ii)               Level 3 fair values

Reconciliation of Level 3 fair values

The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values.