R
e
c
o
r
d
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
Record plc
Annual Report 2018
ABOUT US
Record is an independent currency manager with 35 years’
experience in delivering currency solutions. Everything we
do is for our clients – we have no proprietary business.
Our clients are largely institutions, including pension funds,
charities, foundations, endowments, and family offices,
as well as other fund managers and corporate clients.
We are based in Windsor, in the UK, and have been since our formation in 1983.
Record has always been an independent currency specialist, and has always focused
on developing a deep understanding of the risk and reward opportunities in currency
markets, so as to offer our clients the most appropriate solution to their needs.
Our clients benefit from our experience, and from the continuity and consistency with
which we apply that experience. We also attach importance to continuity of leadership
and management. Record plc is listed on the Main Market of the London Stock Exchange,
and is majority‑owned by its Directors and employees.
Experience
Specialists in currency with
35 years’ experience operating
in currency markets
Integrity
A culture of integrity
and accountability is
embedded throughout our
governance structure
Client
relationships
We aim to build long‑term
“trusted adviser” relationships
with clients to understand
fully their currency issues
and to provide robust and
high‑quality solutions
Visit us online
www.recordcm.com
linkedin.com/company/record‑currency‑management
twitter.com/RecordCurrency
CONTENTS
STRATEGIC REPORT
GOVERNANCE
FINANCIAL
STATEMENTS
Highlights
Where we operate
Chairman’s statement
Chief Executive Officer’s statement
Strategy and objectives
Key Performance Indicators
Business model
Business review
Market review
Operating review
Financial review
Risk management
Corporate social responsibility
Chairman’s introduction
Board of Directors
Corporate governance report
Nomination Committee report
Audit and Risk Committee report
Remuneration report
Directors’ report
Directors’ responsibilities statement
Independent auditor’s report
Financial statements
Notes to the financial statements
2
3
4
6
10
12
14
22
24
28
32
39
43
44
46
50
52
56
71
73
74
78
85
ADDITIONAL
INFORMATION
Five year summary
Information for shareholders
Definitions
116
116
IBC
1
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
A
d
d
i
t
i
o
n
a
l
i
n
f
o
r
m
a
t
i
o
n
Record plc Annual Report 2018
Record plc Annual Report 2018
Strategic report
HIGHLIGHTS
Assets Under Management Equivalents1
Clients
$62.2bn
2017: $58.2bn
+7%
Revenue
£23.8m
2017: £23.0m (restated)
+4%
60
2017: 59
+2%
Profit before tax2
£7.3m
2017: £7.9m (restated)
-7%
Earnings per share
Ordinary dividend per share
3.03p
2017: 2.91p
+4%
2.30p
2017: 2.00p
+15%
Special dividend per share
0.50p
2017: 0.91p
-45%
1. As a currency manager Record manages only the impact of foreign exchange and not the underlying assets, therefore its “assets under management”
are notional rather than real. To distinguish this from the AUM of conventional asset managers, Record uses the concept of Assets Under Management
Equivalents (“AUME”) and by convention this is quoted in US dollars. Further detail of how Record calculates AUME are included on the inside back cover.
2. Revenue, gross profit, operating profit and profit before tax for the comparative periods have been restated to reflect a re-presentation of items previously
included under other income as first disclosed in the results for the six months ended 30 September 2017. As a result, operating profit and profit before tax
are now the same as the operating profit and profit before tax previously disclosed as “underlying”. A reconciliation of all items under the historical and revised
presentation is included under note 13 to the financial statements.
2
WHERE WE OPERATE
The Group’s main geographical markets are the UK,
North America and Continental Europe, in particular Switzerland.
The Group’s main geographical
markets are the UK, North America
and Continental Europe, in particular
Switzerland, as determined by the location
of clients to whom services are provided.
The Group also has clients elsewhere
including Australasia.
The Group’s Head Office is in Windsor,
UK from where all of its operations are
performed and controlled. The Group
also has offices in New York, and in
Zürich, Switzerland.
In addition to these main markets, we
continue to explore new geographical
markets which we believe may offer
attractive opportunities.
Sales office
New York
Sales office
Switzerland
AUME
$46.3bn
Continental Europe
AUME
$8.9bn
United Kingdom
AUME
$6.9bn
North America
AUME
$0.1bn
Rest of World
Regions
Our clients are located in:
• United Kingdom
• United States
• Switzerland
• Australia
• Canada
• Germany
• Singapore
• Cayman Islands
• Netherlands
• Sweden
• Finland
• Luxembourg
• Channel Islands
• Portugal
•
Ireland
3
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional informationHead office Windsor CHAIRMAN’S
STATEMENT
This year, Record celebrates thirty-five
years of being in business in the currency
markets, underlining our strength and
resilience in a continually challenging
and evolving environment.
Neil Record
Chairman
Overview
Such resilience is only possible through our
commitment to our clients, which in turn, is
due to the flexibility of the business and its
staff to take advantage of new opportunities
as they arise and to adapt to meet
new challenges.
exchange market participants. We were
therefore delighted to sign up to both the
FX Global Code and the LGPS Investment
Code of Transparency during the year
and have become a signatory to the
UN-supported Principles for Responsible
Investment since the end of the year.
With this in mind, Record has seen a year
of investment in resources and systems.
These investments support our ability to
offer innovative and differentiated products
to our clients and to maintain our premium
levels of service, as well as to address
new regulatory requirements, such as
under MiFID II.
Regulation in the foreign exchange market
continues to play a pivotal role in the move
towards cost transparency. In our role
of acting as agent for our clients, we put
the utmost importance on integrity and
acting solely in our clients’ best interests,
and in promoting the highest standards of
transparency and market conduct. In this
respect, we fully support and endorse all
efforts made to increase transparency, to
encourage best practice and to maintain
the highest levels of integrity by all foreign
Group strategy
Our core strategy remains to achieve
and maintain trusted adviser status so
as to grow our relationships with current
and potential clients, and to provide
market-leading products and service
levels. In order to achieve this, the Group
continues to invest in its talented people,
in innovation and in systems.
In my statement last year, I highlighted the
opportunities for saving costs and adding
value for clients on certain types of Passive
Hedging mandates using opportunities
created by the emergence of a gap between
interest rates implied by forward FX rates and
actual market interest rates – this gap being
known in the FX markets as “basis”.
These opportunities are now being
recognised in commercial terms, through
innovative changes made to some enhanced
Passive Hedging mandates. There has been
a change in mix of fees on these mandates
from management fee only to reduced
management fee plus a performance fee
element. The first performance fees under
these changes could be recognised in the
current year.
This innovative product development gives
the business a level of exposure to market
performance even in passive mandates.
This adds further diversification to Record’s
income streams, potentially leading to fees
exceeding those earned on a management
fee only basis.
4
Record plc Annual Report 2018Strategic report The Group also recognises the importance
of progress in its distribution strategy.
During the year an office was opened in
Zürich to enhance our current relationships
in Switzerland, and to support further
growth in that market. A Currency
Multi-Strategy fund was launched towards
the end of the year, recognising the need to
offer an alternative vehicle to investors for
whom a pooled fund is more suitable than
a segregated mandate. It was also pleasing
to note the start of a new segregated
Multi-Strategy mandate in a rekindled
market (Australia) for Record, in the quarter
following the year end.
Capital and dividend
In the previous financial year, the Board
confirmed a change in capital policy
which aims to ensure retained capital
broadly equivalent to one year’s worth
of future estimated overheads (excluding
variable remuneration), in addition to
capital assessed as required for regulatory
purposes, for working capital purposes
and for investing in new opportunities for
the business.
In my statement last year I confirmed that
the Board was considering a return of
excess capital to shareholders. A Tender
Offer was subsequently approved at
General Meeting on 14 July 2017, and
the Company purchased approximately
22.3 million ordinary shares (approximately
10% of the then-outstanding share
capital) for cancellation, returning just
over £10 million to shareholders.
In line with the Group’s dividend policy, the
Board is recommending a final ordinary
dividend of 1.15 pence per share, which
would represent a 15% increase in the
ordinary full year dividend to 2.30 pence
per share. This includes a specific increase
of 10% offsetting the decrease in issued
shares cancelled following the Tender Offer
in July. The interim dividend of 1.15 pence
per share was paid on 22 December 2017,
and the final ordinary dividend of 1.15
pence per share, subject to shareholders’
approval, will be paid on 1 August 2018 to
shareholders on the register at 29 June 2018.
The Board has maintained its policy of
declaring a special dividend equal to the
excess of earnings per share over ordinary
dividends and any increase in the Group’s
capital requirements. A marginal increase
in the Group’s assessment of its Pillar II
regulatory capital requirement in conjunction
with the anticipated increase in costs for
the current financial year increases capital
required under the Group’s policy. The net
increase in capital requirements is equal to
approximately 0.23 pence per share, and as
a result the Board is announcing a special
dividend of 0.50 pence per share to be
paid simultaneously with the final dividend,
thereby taking total dividends for the year
to 2.80 pence per share, compared to
earnings per share of 3.03 pence.
In the future, it remains the Board’s intention
to pursue a progressive ordinary dividend
policy, with dividends expected to be
paid equally in respect of an interim and
a final dividend. In setting the interim and
final dividends, the Board will be mindful
of setting a level of ordinary dividend
payments which it expects to be at least
covered by earnings and which allows for
future sustainable dividend growth by the
business in line with the trend in profitability.
The Board intends to continue its approach
of considering returning to shareholders
any excess of earnings over the sum of
ordinary dividends for the financial year
and increased capital requirements,
normally in the form of special dividends.
The Board will continue to consider
ordinary dividends and other distributions to
shareholders on a “total distribution” basis.
The total distribution for any year will be at
least covered by earnings, and will always
be subject to the financial performance of
the business, the market conditions at the
time and to any further capital assessed as
required under the policy described above.
The Board
The Senior Independent Director,
David Morrison, will no longer be deemed
independent from 1 October 2018. A formal
search process overseen by the Nomination
Committee commenced early in 2017 with
a view to appointing a new independent
director to the Board prior to the end of
David’s tenure. In this respect we were
pleased to announce the appointment of
Tim Edwards to the Board as non-executive
director, effective 21 March 2018.
Tim brings a wealth of experience to the
Board from his background in advising,
leading and investing, in particular in
high-growth businesses in biotechnology
and related fields. His skills and expertise
especially in the areas of corporate
development and people management will
be highly relevant to Record’s continued
development, and my Board colleagues
and I are delighted to welcome him to the
Board. Further information is given in this
respect in the Nomination Committee report
on page 50.
Outlook
Although this financial year saw fewer
political shocks than that preceding it, the
world still seems to be in a period of rapid
change – globalisation is being challenged
and the threat of protectionism and trade
wars is growing. In such times, financial
markets, including foreign exchange
markets, will continue to be impacted
by ongoing geopolitical developments
and instability.
Such developments provide opportunities
for the Group to engage with both current
and prospective clients, and to use our
innovative and flexible approach in tailoring
our products to meet specific client
objectives. All of this is directed towards
delivering sustainable, long-term growth
for the business and sustainable long-term
returns for our shareholders.
The continued success of the Group is
due to the support of our clients and
to the talented people within, providing
innovation and thought-leadership as well
as the highest levels of client service. On
behalf of the Board, I would like to take this
opportunity to thank everyone and to look
forward to further opportunities and growth
in the year ahead.
Neil Record
Chairman
14 June 2018
5
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information CHIEF EXECUTIVE
OFFICER’S STATEMENT
Record’s management is
confident that investments in
product enhancement will create
further opportunities to grow the
business in the current financial year.
James Wood-Collins
Chief Executive Officer
In a year when sterling’s strength presented
revenue headwinds, in contrast to the
previous financial year, Record achieved
revenue growth of 4%. Continued
investments to enhance our products and
services, as well as increased occupancy
costs, led to a reduction in operating
margin to 31%, and a 7% reduction in profit
before tax.
Record’s management is confident that
these investments will create further
opportunities to grow the business in
the current financial year, with a diverse
portfolio of well-positioned services in
both currency risk management and
return-seeking strategies.
Market overview
The year to 31 March 2018 saw a period
of relative calm in financial markets, due
to improvements in developed market
growth prospects and the apparent lack
of inflationary pressures. In contrast to
the previous year, political outcomes were
much as anticipated and were not a major
source of market uncertainty. Historically
low asset price volatility was therefore a
major theme for the year, though this ended
somewhat abruptly early in 2018. With a
lack of political stimulus, trends in the FX
market were driven primarily by economic
surprises, in particular Eurozone growth.
Investment performance
Dynamic Hedging for US clients generated
modestly negative returns, although the
low hedge ratios maintained by Record’s
process meant that clients kept most of
the gains from a broadly weak US dollar.
Performance for UK clients was mixed by
currency.
In return-seeking programmes,
Multi-Strategy mandates generated
negative returns, although Record’s track
record since inception continues to be
supportive of further sales of this product.
6
Record plc Annual Report 2018Strategic report AUME
Revenue
Profit before tax
$62.2bn
£23.8m
7%
4%
£7.3m
7%
AUME increased by
7% in US dollar terms
over the financial year
to $62.2 billion.
Revenues increased by 4% to £23.8 million,
notwithstanding the impact of sterling
strength on the conversion of the 87%
of management fees that are denominated
in currencies other than sterling. Record’s
costs before variable remuneration grew
by 13%, largely attributable to the 11%
growth in personnel costs due to continued
investment in additional headcount in order
to maintain innovation and enhancement
of our services. As a result the Group’s
operating margin reduced from 34% to
31%, and profit before tax fell by 7% to
£7.3 million. Basic earnings per share of
3.03 pence represented a 4% increase on
the prior financial year, taking into account
the Tender Offer undertaken in July 2017.
Asset flows and
financial performance
AUME increased by 7% in US dollar terms
over the financial year to $62.2 billion,
and decreased by 5% in sterling terms to
£44.3 billion. Net outflows of $1.2 billion in
the year represented aggregate net outflows
from hedging of $2.2 billion (predominantly
represented by net outflows from Dynamic
Hedging of $1.7 billion), offset by net inflows
to Currency for Return, Multi-product
and cash of $0.6 billion, $0.3 billion and
$0.1 billion respectively. The aggregate
impact of external factors (i.e. equity and
other market movements and the impact
of exchange rates over the period) was
to increase AUME by $5.1 billion and the
effect of changes to portfolio sizes for
some Currency for Return mandates with
defined volatility targets increased AUME
by $0.1 billion. Client numbers increased to
60. The anticipated mandate changes set
out in April’s Fourth Quarter Trading Update,
resulting in net inflows of $0.5 billion
to Passive Hedging and $0.3 billion
to Multi-Strategy, and one net additional
client, have now all taken place.
7
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information CHIEF EXECUTIVE
OFFICER’S STATEMENT CONTINUED
Strategic progress
Record’s strategic progress over the year can be measured against each of the strategic objectives set out in the Annual Report 2017.
Client relationships
Innovation
People
As outlined previously, the enhancement of
existing products and development of new
ones is a constant feature at Record, driven
by clients’ needs and market opportunities.
Much of our focus in the financial year has
been on developing Passive Hedging to
take advantage of market opportunities
without changing the client’s hedge ratio,
thereby reducing costs and adding value.
As well as identifying and monitoring market
opportunities, we have invested in the
resources required to make investment
decisions on a dynamic basis.
Continued enhancement is also a feature
of Dynamic Hedging and Currency
for Return strategies, with research in
particular on adding further strategies
to Multi-Strategy. We equally invest in
operational and implementation capabilities.
Although the reversal of the introduction of
mandatory variation margin on FX forwards
for many of our clients has meant that
fewer clients than anticipated have had to
introduce this, we see growing opportunities
to use this capability for clients choosing
to exchange margin.
We continue to attract, retain and develop
high-quality staff, principally through intern
programmes and graduate and early-stage
career hires. We then focus on internal
development and retention of these
individuals. When recruiting staff early in
their careers some attrition is inevitable, but
this also creates a growing pool of alumni
with whom we maintain strong relationships.
We have largely succeeded in retaining key
staff in a highly-competitive employment
market. During the year we have brought
much of our recruiting activity in-house,
with the intention of maintaining consistently
high standards at lower cost than using
external recruitment agents. We participate
in industry remuneration benchmarking
exercises, and regularly review remuneration
across the firm to ensure that we remain
competitive, whilst recognising increased
individual contributions through promotions.
The increase in personnel costs (excluding
variable remuneration) of 11% has reflected
the increase in staff numbers to support
product innovation and enhancement, and
ultimately future growth.
Our strategy of building trusted individual
relationships with clients and their advisers
remains unchanged. The Group benefits
from the diversification amongst its clients,
by location, client type and objective,
in that any given period typically sees a
variety of different themes predominate.
During the financial year, our business
in Switzerland, long a core market,
continued to be focused largely on Passive
Hedging. The challenges in hedging to
Swiss francs, particularly in a rising US
dollar interest rate environment, mean that
Switzerland has led much of our innovation
in Passive Hedging. This innovation has
created opportunities to add value for
clients, which in some cases has led to
those clients altering their fee structure
to include a performance-related element,
as discussed in the Fourth Quarter
Trading Update.
In the US, the dollar has broadly been
weak. As a result, interest in currency
hedging has diminished; we believe this
to be temporary and cyclical rather than
structural. The UK market continues to be
more challenging, despite some recovery
in sterling, and we see Record’s best
prospects here in identifying opportunities
for specialist and differentiated hedging
services. Currency for Return in general,
and Multi-Strategy in particular, is
much less dependent in perception
on the client’s base currency, and we
have continued to see growing interest.
This has been demonstrated by the new
mandate that has started in this financial
year, and has encouraged us to launch the
Record Currency Multi-Strategy Fund.
8
Record plc Annual Report 2018Strategic report Risk management
Growth
Profitability
The Group takes a proactive approach
to developing its systems, people and
processes, in order to improve management
of operational risk and to meet the demands
of emerging regulatory requirements.
Much of the systems development focus
during the financial year was on meeting
the requirements of MiFID II, which we
were pleased to complete in time for the
3 January 2018 deadline. We have continued
to extend the scope of enhanced systems
for exposure capture and rebalancing
processes for Hedging mandates, and
to invest in our cyber-security defences.
As discussed on page 23, the Group has
developed a contingency plan should the
UK’s exit from the European Union result
in the loss of “passporting” permissions,
although implementation of this plan was
paused given the commitment by both UK
and EU authorities to a transition period
extending to December 2020.
We have achieved growth in client
numbers (59 to 60), AUME ($58.2 billion
to $62.2 billion), management fees
(£22.7 million to £23.5 million) and revenues
(£23.0 million to £23.8 million) over the
period. We have invested in people across
the business, with headcount growing
from 75 at 31 March 2017 to 83 at
31 March 2018. We continue to focus on
growth opportunities in our core markets
of the UK, continental Europe in particular
Switzerland, and North America, as well
as selectively pursuing opportunities in
other markets.
The Group’s profitability has been
restrained by the decision to invest in
additional headcount to maintain innovation
and service enhancement, as well as
by increased office occupancy costs.
Record’s management continues to be
confident that these investments will lead
to further growth opportunities across
Record’s product range. Record’s profit
before tax decreased from £7.9 million
to £7.3 million over the period, and the
operating margin has decreased from
34% to 31%.
Find out more about our
strategy and objectives
on pages 10 and 11
Outlook
With respect to new business, we are
seeing a gratifyingly diverse range of
opportunities across client locations,
investor types and objectives. The
investments we are continuing to make in
service enhancement, in particular but not
limited to Passive Hedging, are expected
to result in new opportunities with both
current and prospective clients, including
in Europe and in Switzerland in particular.
In the US, recent US dollar weakness
has temporarily diminished interest in
hedging, but Multi-Strategy continues to be
well-positioned, and the recently-launched
fund is expected to make it accessible to
a wider range of investors than previously.
We continue to explore further opportunities
in other markets, such as Australia.
From a financial perspective, the move
in the case of some enhanced Passive
Hedging mandates to performance fee
structures, means that management fee
revenues will be reduced, although we
continue to expect performance fees to
match or exceed the foregone management
fees over time. All of Record’s management
and staff remain focused on maintaining
and enhancing our relationships with
existing clients, as well as developing new
client relationships, so as to continue to
grow the business.
James Wood-Collins
Chief Executive Officer
14 June 2018
9
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
STRATEGY
AND OBJECTIVES
We are a specialist currency manager.
Client relationships
Innovation
People
Building strong, long‑term
“trusted adviser” relationships
with our clients
Devising and implementing new
products and strategies
Attracting, developing and retaining
a diverse pool of high‑quality people
Enhancing existing products
and strategies
• A deep understanding of our clients’
needs and concerns helps us to develop
effective solutions and to identify new
business opportunities
• Bespoke solutions meet unique client
requirements, reinforce our thought
leadership and differentiate Record from
our competitors
• Strong relationships lead to client longevity
• Innovative solutions enhance premium
• Ensures high quality and continuity
of products and service to clients
• Development, diversity and retention of
talent key to delivery of best in class business
model and to long-term stability of business
and support for new ideas
brand and reputation and give opportunities
for growth
• Enhances product diversification
of our business
• Underperforming products or products
failing to meet client objectives lead to risk
of client and reputational loss
• Bespoke solutions may be less scalable
and represent more operational risk than
standard products
• Buoyant market leads to attractive
alternative opportunities and risk of
upward pressure on fixed remuneration
• Change of clients’ or Record’s personnel
• Products are susceptible to changes in
• Entrepreneurial individuals may wish
can put relationships at risk
• Link to Principal risks: People and
employment, Investment, Operational
external factors e.g. economic and regulatory
factors, market sentiment and volatility
• Link to Principal risks: People and
employment, Market, Operational
to broaden their experience elsewhere
• Link to Principal risks: People and
employment, Investment, Operational
• Number of clients
• Management fees
KPI: Client numbers
60 +2%
Management fees
£23.5m +3%
• New business or clients won for bespoke
• Retention and longevity of talent
mandates or new strategies
• Newly seeded funds and growth in seeded
funds through external investment
• A number of existing Passive Hedging
Staff retention
clients upgraded to an enhanced Passive
Hedging service, in some cases providing
the opportunity for earning performance fees
• Seeding of the new Multi-Strategy fund
in the final quarter of the year
93% (2017: 83%)
Employees for more than five years
46%
• A changing geopolitical landscape will
• Further enhancement to strategies across
• Continued focus on selective recruitment
continue to drive uncertainty, maintaining
FX market issues high on client agendas and
providing increasing opportunities to engage
with clients
• Continued focus on liquidity and cash flow
in low yield and highly regulated environment
will lead to opportunities for more bespoke
mandates and complementary services
alongside current product range
the whole suite of products
and retention of key talent
• Development of our cash and liquidity
• Identify and develop talented individuals
management capabilities to complement
our product offerings
at early stages of their career to
maximise potential
• Provide collaborative and collegiate working
environment to support innovative thinking
and productivity
10
:
y
b
d
e
v
e
i
h
c
a
e
r
a
s
l
a
o
g
r
u
O
:
s
t
fi
e
n
e
B
:
y
r
e
v
i
l
e
d
o
t
s
k
s
i
R
:
y
b
d
e
r
u
s
a
e
M
:
r
a
e
y
n
i
e
d
a
m
s
s
e
r
g
o
r
P
:
9
1
-
Y
F
r
o
f
s
n
o
i
t
a
t
c
e
p
x
E
Record plc Annual Report 2018Strategic report
Our goals are to meet client demand for robust and innovative
currency solutions and, in doing so, to create shareholder value
for investors over the long term.
Risk management
Growth
Profitability
Maintaining a robust operational
model underpinned by a strong risk
management framework
Growing AUME
Operating a scalable and
profitable business model
• Reinforces client confidence and trust
• Fundamental to creating long-term
• Fundamental to creating long-term
• Minimises risk of errors and complaints
shareholder value
shareholder value
• Enhances reputation and stability
• Enhances liquidity in shares
of organisation
• Leads to increase in revenue streams
• Supports development of business and talent
• Assists attraction and retention of talent
• Increasing costs of resources in connection
with managing risks associated with more
bespoke mandates
• Link to Principal risks: People and
employment, Operational
• Investment in systems
• Formal complaints
• Changes in product mix towards lower
• Profitability sensitive to size and
margin mandates, or mandates with lower
management fees but with performance fees
may affect short-term profitability
concentration of client base
• Market competition may lead to
reduced margins
• Business scalability can be affected by AUME
type (i.e. less scalable bespoke mandates)
• Size of mandates can be affected by
external factors (e.g. market movements)
• Link to Principal risks: Concentration,
People and employment, Investment, Market
• Business scalability can be affected by
product mix
• Link to Principal risks: All
• AUME movement in year
• Operating profit margin
• Projects to enhance efficiency of data
KPI: AUME
management for both Passive and Dynamic
Hedging clients completed in year
• Significant system enhancements to
address MiFID II and other regulatory
changes completed within formal deadlines
during the year
• Complaints: none (2017: none)
$62.2bn +7%
• Development to Multi-Strategy process to
improve efficiency and strengthen controls
within a flexible framework able to support
future enhancements
• Heightened geopolitical tensions and
economic uncertainty in global markets
should help to maintain focus on the effects
of FX markets on clients’ portfolios
• Continued investment in developing and
upgrading core systems and infrastructure
• Complementary services may assist in
developing growth in overall AUME
• Launch of new Multi-Strategy Fund may
lead to more scalable interest in Currency
for Return
• Basic EPS
• Dividends paid
KPI: Operating profit margin
31% (2017: 34%)
KPI: Basic EPS
3.03p +4%
Ordinary dividends (per share)
2.30p +15%
Special dividends (per share)
0.50p -45%
• More bespoke products may be less
scalable and affect profitability
• Flows into Currency for Return products
offer higher margins and scalability through
fund vehicles
• A change in mix from management fee only
Passive Hedging mandates to management
plus performance fees, alongside continued
investment in people and resources may
reduce operating margins over the short
to medium term
11
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information KEY PERFORMANCE
INDICATORS
Measuring our performance against our strategy.
Indicator
AUME
We aim to grow AUME1 by building long‑term
relationships with clients and developing new
products and enhancing existing products
resulting in net inflows to AUME
Client numbers
Client numbers represent the number of separate
legal entities that have appointed Record directly
as an investment manager or invested in a
Record fund
Average
management
fee rates
Operating
profit margin
The Group aims to provide a premium level of
service and expertise in exchange for a fair level
of remuneration
The Group aims to increase operating profit
margin2 over the long term through investing in
resources to maintain its premium products and
service whilst building profitable and diversified
revenue streams
Basic earnings
per share (“EPS”)
The Group’s objective is to create shareholder
value over the long term, reflected in consistent
growth in EPS
1. As a currency manager Record manages only the impact of foreign exchange and not the underlying assets of its clients, therefore its AUM (Assets Under
Management) are notional. To distinguish this from the AUM of conventional asset managers, Record uses the concept of Assets Under Management Equivalents
(“AUME”) and by convention this is quoted in US dollars.
2. Operating profit margin is defined as operating profit divided by revenue.
12
Record plc Annual Report 2018Strategic report The Board and Executive Committee use a number of key
performance indicators (“KPIs”) to monitor the performance
of the Group.
How we performed this year:
Performance history:
• AUME increased by +7% in US dollar terms but
decreased by -5% in sterling terms
• Client numbers remained at similar levels to last year,
growing by +1 and reached 60 at the end of the year
AUME ($ billion)1
FY-18
FY-17
FY-16
FY-15
FY-14
Client numbers
FY-18
FY-17
FY-16
FY-15
FY-14
• Fee rates across the product range were broadly
Management fee rates (bps p.a.)
maintained during the year
• Operating profit margin decreased to 31% for the year
as a result of the continued investment in resources to
enhance products and client service
20
18
16
15
14
12
4
3
Dynamic
Hedging
Passive
Hedging
Currency
for Return
Multi-
product
Operating profit margin
FY-18
FY-17
FY-16
FY-15
FY-14
• Basic EPS increased by 4% for the year, as the result of
EPS (pence per share)
two factors – profit after tax fell by 3% whilst the £10 million
share buy back in July 2017 reduced the number of issued
shares by approximately 10%
FY-18
FY-17
FY-16
FY-15
FY-14
62.2
58.2
52.9
54.7
51.3
60
59
58
55
48
FY-18
FY-17
31%
34%
33%
35%
33%
3.03
2.91
2.55
2.66
2.48
13
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information BUSINESS MODEL
Our business model depends on
our relationships and resources.
Relationships and resources
What we do
OUR CLIENTS
Client relationships are the keystone of our success. Only by
building strong, long-term “trusted adviser” relationships with
our clients can we fully understand their currency issues and
develop effective solutions for their currency requirements.
OUR EXPERIENCE
We are a specialist currency manager with 35 years’ experience
– we have a fundamental understanding of how currency
markets operate which we’ve used to develop a leading
position in managing currency for institutional clients.
OUR PEOPLE
We view our ability to attract, retain and motivate highly-talented
staff as key to organisational stability and long-term success.
Our recruitment process is carefully structured to ensure that
talented people with the right skills and experience are recruited
into the Group.
OUR INFRASTRUCTURE
Our operational infrastructure is built around how we service
our clients and ensures a collaborative approach across all
sections of the business.
All of our investment, operational and support functions are
based centrally at the Head Office in Windsor, UK and provide
services to the Group as a whole.
OUR FINANCIAL RESOURCES
The business maintains a robust balance sheet and strong
capital position. Positive cash generation allows us to
reinvest for growth in the business and to drive shareholder
value and returns.
OUR INVESTMENT PROCESS
INNOVATION
We identify persistent
inefficiencies and
patterns of behaviour
in FX markets
EXPERIENCE AND
KNOW HOW
We design investment
processes to
exploit them
OPERATIONAL RISK
MANAGEMENT
We assume full operational
risk on behalf of our clients
– our infrastructure, systems
and processes are designed
to mitigate and minimise the
operational risk associated
with managing clients’
currency mandates.
INDEPENDENCE AND
TRANSPARENCY
We act as an independent
agent for each of our
clients under an investment
management agreement. Being
independent from any banks
or brokerage firms, we remain
unconflicted and fully able to
act in our clients’ best interests
and to fulfil our fiduciary
obligations. Everything we do
is for our clients – our only
source of revenue is from client
fees. We are never our clients’
counterparty and therefore
make no money from spreads.
14
Record plc Annual Report 2018Strategic report OUR INVESTMENT PROCESS
RESEARCH
We refine our
products by
continuing research
BESPOKE
We manage each
mandate to meet
client-specific needs
OUR DISTRIBUTION PROCESS
• Our products are delivered both through segregated
mandates and pooled fund structures to suit individual
client requirements.
• We distribute through both direct sales to institutional clients,
and through local and global investment consultants.
• We build long-term relationships with investment consultants
and help develop their understanding of our products
and services.
What we deliver
OUR PRODUCTS (see page 16)
Bespoke solutions – we operate Hedging mandates and unfunded
Currency for Return mandates as bespoke, segregated mandates, managing
each client’s unique characteristics through robust operational systems built
to manage exposures efficiently and to minimise operational risk.
Currency funds – our Currency for Return strategies are also delivered
through a pooled fund structure.
PREMIUM CLIENT SERVICE
Superior service is core to our client proposition and we achieve this
on various levels by assigning a dedicated and experienced relationship
manager to oversee each client portfolio. Also, direct communication
between our operational and administrative specialists with each client’s
own internal functions is encouraged (for example on rebalancing or
reporting issues), building on the general level of interaction with the client
and underpinning the overall “trusted adviser” relationship. This high level of
communication on multiple levels ensures all aspects of the currency issues
facing our clients are fully considered and understood in terms of solutions.
REWARDING CAREERS
At Record we have created an environment which encourages bright,
dynamic and committed individuals to flourish. Being a small business
everyone has the opportunity to make a significant contribution to the
company. We are able to provide excellent career prospects and the
opportunity to work closely with senior and experienced people.
THOUGHT LEADERSHIP
Over the last 35 years Record has developed a leading position in its
sector. Our knowledge of the currency market is sustained by our research
and results in innovative products and continued process enhancement.
SHAREHOLDER VALUE
We aim to operate an effective and efficient capital policy, and to deliver
business growth and maximise shareholder returns over the long term.
The Group’s dividend policy is progressive and aims to return any
excess of future earnings over ordinary dividends and additional capital
requirements to shareholders, potentially in the form of special dividends.
AUME by client type
31 March
Government
and public schemes
2018
2017
2016
42%
42%
41%
Corporate
schemes
Foundations, trusts
and fund managers
42%
44%
43%
16%
14%
16%
15
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information BUSINESS MODEL CONTINUED
Our products
The Group’s suite of core products is split into two main categories:
Currency Hedging and Currency for Return products.
Currency Hedging
$57.3bn AUME
Record’s primary risk management products
are the hedging products and are predominantly
systematic in nature. Record has the
experience and expertise to deliver tailored
hedging programmes to suit the individual
currency needs of our clients.
We continue to enhance our product offerings,
so that they maintain their premium product
status. In a competitive marketplace, our ability
to differentiate our hedging products is key to
maintaining and growing our market share further.
Passive Hedging: $53.0bn AUME
Passive Hedging mandates have the cost-effective reduction of exposure to currency risk as
their sole objective by the symmetrical and unbiased elimination of currency volatility from clients’
international portfolios.
Core Passive Hedging
The core Passive Hedging product requires
execution and operational expertise to a greater
extent than investment judgement, and provides
the following benefits to clients:
•
Independent, best execution
• Custom benchmarks
• Optimised exposure capture
• Netting benefits
• Regulatory reporting
• Management of cash flows
Enhanced Passive Hedging
The enhanced Passive Hedging product offers
the same benefits and requires the same level
of execution and operational expertise as the
core product but recognises the opportunities
presented for adding value by taking advantage
of structural inefficiencies and behavioural
changes now arising in FX markets. It requires
continuous monitoring, and investment
judgement and skill to identify the opportunities
and then to take advantage of them in a
structured and risk-managed way.
Currency for Return
$1.6bn AUME
Record’s Currency for Return strategies have
the generation of investment return as their
principal objective.
The range includes four principal strategies
being Carry, Emerging Market, Momentum and
Value and these strategies can be offered in
either a segregated or pooled fund structure.
Record can combine these strategies in different
weightings that appeal to particular market
segments under the Multi-Strategy approach.
Multi-Strategy
The Multi-Strategy approach can be applied as an “overlay” to help clients achieve a variety of
investment objectives, and offers clients access to the main sustainable sources of return in the
currency market.
Carry
The Forward Rate Bias is the observation that
higher yielding currencies tend to outperform
lower yielding currencies over longer time
periods, and is regarded by Record as a
fundamental and structural currency risk
premium. The Carry strategy aims to exploit
this observation and generate returns by buying
selected developed market higher interest rate
currencies and selling selected lower interest
rate currencies.
One of Record’s medium to long-term aims
is to develop currency as an asset class in its
own right. The FTSE Currency FRB10 Index
was launched in 2010, closely followed by the
launch and seeding of Record’s pooled fund,
the Record Currency – FTSE FRB10 Index Fund
to track the index.
Emerging Market (“EM”)
Currency
EM currencies offer investors an opportunity
either to seek a return from such currencies
or to seek to separate the currency effect
from the underlying overseas domestic asset
performance (typically equities or bonds).
Record believes that as a result of convergence
in the levels of economic output between
emerging and developed markets, holding EM
currencies offers the benefit of real exchange
rate appreciation as well as offering higher
positive real yields. This currency appreciation
has historically been a significant contributor
of returns to developed market holders of
EM assets including equities and bonds.
16
Record plc Annual Report 2018Strategic report We also offer bespoke solutions tailored
to individual client requirements.
Dynamic Hedging: $4.3bn AUME
Value is generated entirely through the
asymmetric reduction of pre-existing
currency risk.
Record’s Dynamic Hedging product is an
attractive alternative to Passive Hedging and
has the reduction of exposure to currency
risk as its principal objective and generating
value as a secondary objective. The Dynamic
Hedging product seeks to allow our clients
to benefit from foreign currency strength
while protecting them from foreign currency
weakness relative to their own base currency.
Other risk management products: Currency audit
Fiduciary execution
Signal hedging
Clients receive a diversified return stream which performs well under a variety of market conditions
and reduces the correlation of their currency programme to other asset classes.
Currency Momentum
This strategy exploits the periodic tendency
of the spot exchange rate to appreciate after
a prior appreciation, and to depreciate after a
previous depreciation. This market inefficiency
has persisted across different currencies
and is present in other asset classes, such
as equities. Currency is commonly thought
of as trending and the Momentum strategy
seeks to make a return from this phenomenon.
Currency Value
Research suggests that purchasing power
parity (“PPP”) valuation models have been
relatively good predictors of the long-term
direction of spot movements. Currency Value
strategies exploit this insight, buying currencies
that are undervalued relative to PPP and selling
currencies that appear overvalued.
Multi‑product:
$3.0bn AUME
Multi‑product mandates
typically have combined
risk‑reducing and
return‑seeking objectives,
and are bespoke in nature.
These may include a
hedging mandate overlaid
with selected elements of
the Currency for Return
product, which cannot
readily be separated into its
hedging and return‑seeking
components for reporting
purposes. These mandates
are more variable in
nature, attracting different
levels of fees.
17
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information BUSINESS MODEL CONTINUED
Other products
Record has a licensing agreement with
WisdomTree Investments, Inc. which,
through its subsidiaries in the US, Europe
and Japan (collectively “WisdomTree”),
is an exchange-traded fund and
exchange-traded product sponsor and
asset manager headquartered in New
York. Under the licensing agreement,
Record provides signals that are used to
dynamically hedge currency exposures
within WisdomTree’s rules-based index
family. We are optimistic that this will allow
dynamic hedging strategies to be accessible
to a wider range of investors than has
previously been the case.
Since Record is not managing the
exchange-traded funds that seek to
track the performance of their respective
WisdomTree Dynamic Currency Hedged
Indexes, assets under management in these
funds do not contribute to Record’s AUME.
Record reports revenues arising from this
licensing agreement under “Other currency
services income”.
Further information on product investment
performance is given in the Operating
Review section (page 24).
Distribution
The Group’s sales and marketing activities
are organised to ensure that resources are
deployed where opportunities have been
identified as giving the most likelihood of
future success. To this end, the sales and
marketing team is split between the offices
in the UK, US and Switzerland which serve
their local markets, and a centralised team
that provides comprehensive technical and
administrative support to the sales offices
from the headquarters based in the UK.
We distribute through both direct sales
to institutional clients, and through local
and global investment consultants.
Building long-term relationships with
investment consultants and developing their
understanding of our products and services
is important to our continued success and
our ability to deliver quality services to our
clients. By working closely both with clients
and investment consultants we can identify
new business opportunities as the currency
landscape continues to change and evolve.
18
Record plc Annual Report 2018Strategic report Our market
The currency market represents the
biggest and most liquid market available
with exceptionally low transaction costs
and daily FX volumes averaging $5.1 trillion
per day (source: BIS Triennial Central Bank
Survey of Foreign Exchange and OTC
Derivatives Markets 2016). The FX market
is essential to global trade and finance and
includes a high proportion of not-for-profit or
forced participants, resulting in profit-seeking
financial institutions continuing to represent
a minority of FX market participants.
Consequently, the market displays persistent
patterns of behaviour or inefficiencies which
Record believes can best be exploited
by a combination of systematic and
discretionary processes.
The FX market continues to offer
opportunities for investors. Record’s
expertise is in identifying and understanding
these opportunities and then working
with clients to understand how such
opportunities may be used to their best
advantage taking account of each client’s
individual circumstances and attitude to risk.
19
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information BUSINESS MODEL CONTINUED
Staff retention
(%)
88%
83%
93%
2016
2017
2018
Our people
Record views its ability to attract, retain,
motivate and develop a diverse group of
highly-talented staff as key to organisational
stability and long-term success.
Recruitment
The recruitment process is carefully
structured and run predominantly in-house
to ensure that talented people with the
right skills and experience are recruited
into the Group. As part of this, the Group
runs a successful internship programme,
which gives the Group the opportunity to
benefit from talented individuals who are in
the early stages of their career and identified
as potentially having the necessary skills
required to be able to add value to the
business in future. The process continues
with a comprehensive induction programme
for all new joiners to allow them to adapt to
the specialist environment within Record.
The Group has continued to recruit
selectively throughout the year in order
to maintain a flexible, scalable platform
for future growth. Continued investment
in resources to underpin product
enhancements and sustain our ability
to innovate has resulted in an increase
in headcount during the year. The number
of employees (including Directors) in the
Group at 31 March 2018 was 83 (2017: 75).
Staff retention, motivation and development
We invest heavily in our people, offering
opportunities and support for them
to grow their knowledge, skills and
capabilities. An effective performance
review and objective-setting process,
personal development planning including
the development of career paths, together
with our open and inclusive office culture,
are all key priorities in the development
and retention of our staff. In addition, the
Group Share Scheme, the Group Profit
Share Scheme and the Group Share
Incentive Plan promote the acquisition of
equity in the Company by staff, improving
motivation and retention, as well as aligning
employees’ interests with those of our
clients and shareholders. At 31 March 2018,
the proportion of employee shareholders
stood at 72% (2017: 68%). Furthermore, the
business ensures that wider factors, such as
market trends in pay, are monitored closely
to ensure risks to staff retention are limited
as far as possible.
20
Record plc Annual Report 2018Strategic report The physical office environment and
how this affects both the productivity
and wellbeing of our employees is also
considered crucial to the attraction,
retention and motivation of our staff.
Consequently we provide a collaborative
office environment incorporating
space designed around the wellbeing
of employees, and utilising modern
communication technology throughout
the business.
Our infrastructure
The Group’s operational infrastructure is
built around how we service our clients and
ensures a collaborative approach across
all sections of the business. To this end
our teams are deliberately organised by
function, rather than product. As such, all
teams are involved (to a greater or lesser
extent) in the day-to-day management
or support of each client mandate. We
maintain a purpose-built and fully integrated
end-to-end operational process to allow for
scalable and customisable implementation
of our products. Teams take a collaborative
approach to ensuring that each stage of
implementation, from data capture through
to client reporting, is seamlessly carried out
with a client-centric focus.
We continuously invest in technological and
human capital resources to build upon the
capability of our investment offering and
ensure the continued integrity of our robust
operational processes.
In the year, there has been significant
systems development to meet the
requirements of MiFID II, in particular to
manage the capture and processing of data
required for transaction reporting, and to
improve the process for exposure capture
and rebalancing for Hedging mandates.
Record considers cyber risk to be one of
the principal risks to the business, and
has continued to invest in both the latest
cyber-security defences and in staff training
(see Risk management on page 32).
Trade
execution
Compliance
and risk
Data
Investment
decisions
Trade
confirmation/
notification
Reporting
Reconciliation
Settlement
21
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information MARKET
REVIEW
For the most part, the year to 31 March 2018
saw a period of relative calm in financial
markets, as improvements in developed
market growth prospects and the apparent
lack of inflationary pressures created a
supportive environment for risk assets.
In addition, and in contrast to the previous
year, outcomes on the political front were
much as anticipated and were not a major
source of market uncertainty. Historically
low asset price volatility was therefore a
major theme for the year, though this ended
somewhat abruptly early in 2018. With a
lack of political stimulus, trends in the FX
market were driven primarily by fundamental
economic surprises, with euro strength
standing out in particular. A lack of substantial
changes to banking regulation over the past
year led to a continuation of the dislocations
between FX forwards and the money
markets (FX basis).
Monetary policy and interest rates
Interest rates in developed markets
remained low in relation to the historic
norms, although central banks began to
show signs of differentiation in their respective
policy cycles. Those that raised interest
rates faced a combination of reduced slack
in the economy (in the US), wage and inflation
pressures from stabilising commodity prices
(in Canada), and an inflation target overshoot
(in the UK). On the other end of the spectrum
the Bank of Japan (“BoJ”) and Swiss
National Bank (“SNB”) both committed to
continued low interest rates. In between
was the European Central Bank (“ECB”),
which maintained expansionary policy but
continued to guide market expectations
around its normalisation strategy.
The Swiss National Bank continued to
pursue exceptionally low interest rates as
inflationary pressures failed to materialise.
The Swiss franc showed mixed performance
and depreciated notably versus the euro yet
strengthened against the US dollar. Overall,
the franc fell on a trade-weighted basis,
and this was broadly reflective of diverging
monetary policy prospects vis-à-vis the rest
of the world, and the absence of severe
political upset in Europe.
The Japanese yen traded in a range versus
the US dollar for most of the financial year
before strengthening in the first quarter
of 2018. The BoJ continued to target
a 10-year yield of 0%, though markets
began to price the possibility of an increase
in the target yield. This came despite only
a modest improvement in core inflation –
which remains well below the BoJ target
– and was in reaction to hawkish verbal
communications from BoJ Governor
Haruhiko Kuroda.
The Bank officially maintained that inflation
would be allowed to overshoot the 2%
target before monetary tightening occurs.
FX basis developments
Over the past few years, the historical
relationship between the interest rates
observed in the money markets and those
implied by the FX forward market has
weakened. This dislocation is known as the
FX basis.
Over the year, there has been no major
change in the overall basis trends, although
the magnitude of dislocations has varied
across the developed markets due to
currency specific factors.
The Federal Reserve followed through on
its promise of further policy normalisation,
contrary to market expectations at the start
of the year. An initial rate hike in June was
followed by two more; one in December
and one at newly appointed Federal
Reserve Chairman Jerome Powell’s first
meeting in March. Underlying measures
of US inflation were broadly unchanged
and remained below the Federal Reserve’s
target. Despite a seemingly supportive
economic backdrop, the US dollar fell on
a trade-weighted basis, continuing a trend
that first emerged in late 2016.
The ECB maintained its ultra-accommodative
policy stance, though altered the
implementation of policy by lowering
the size of monthly bond purchases and
extending the expected end date of its QE
programme. Easy policy in the Eurozone
was overshadowed by an economic revival
which saw Eurozone growth outstrip that
of other G4 economies. Markets, and by
extension the euro, responded accordingly
with the single currency appreciating
notably. Europe’s busy political calendar
did little to upset the upward trend as the
election of Emmanuel Macron in France
and the formation of a coalition government
in Germany contrasted with the success
of more Eurosceptic parties in Italy’s
general election.
The Bank of England went some way
towards reversing emergency stimulus
deployed following the Brexit referendum,
and, having turned cautiously optimistic on
growth, hiked rates by 0.25% in November.
In addition to a less severe than projected
slowdown following the vote, the decision
was simplified by inflation which, as a result
of sterling’s decline in 2016, peaked above
3%. Though there has been a general
perception of sterling strength, this was as
much a story of US dollar weakness, as
the pound appreciated only modestly on a
trade-weighted basis.
22
Record plc Annual Report 2018Strategic report Regulation
Record’s main regulatory focus during
the financial year, in addition to ensuring
compliance with established regulatory
regimes to which Record adheres around
the world, was on implementing the
requirements of new regulation. Foremost
among these were the revised EU Markets
in Financial Instruments Directive, known
as MiFID II. This wide-ranging regulation
had consequences across the business, of
which the most impactful were in post-trade
transparency and transaction reporting. We
were pleased to achieve full compliance by
the deadline of 3 January 2018, and have
now embedded all the relevant requirements
in our business-as-usual processes.
The European Market Infrastructure
Regulation, or EMIR, had also been
expected to impose widespread changes,
in particular by imposing mandatory
variation margin on foreign exchange
forward contracts for a wide range of EU
market participants, including many of
Record’s clients. We had long advocated
against this approach, since the regulation
was first proposed in 2014, and so we
were ultimately satisfied to see the range of
market participants affected by this reduced
in scope in late 2017.
Record reviewed and modified its processes
to meet its obligations to safeguard personal
data in order to meet the requirements of the
General Data Protection Regulation (“GDPR”)
when it came into force on 25 May 2018.
Brexit
This financial year covered the first half
of the two-year Article 50 notice period.
The ebb and flow of expectations as to
the consequences of the UK’s exit from
the EU was felt both in currency markets
and in Record’s contingency planning.
As noted on page 22, it became evident
throughout the year that the immediate
economic consequences of the Brexit
referendum vote in June 2016 had been
less severe than expected in some quarters
at least. Despite the EU negotiating principle
that “nothing is agreed until everything is
agreed”, the year saw a gradual diminishing
of concerns over a “hard” Brexit, as some
consensus began to emerge between
the UK and the EU. This was first evident
in agreement in principle on the financial
terms of separation, citizens’ right and
the Irish border in December 2017.
Similar agreement on an implementation
or transition period was reached in
March 2018. This consensus as well as the
improved economic backdrop contributed
to sterling’s appreciation over the year,
particularly against the US dollar.
The caveat that “nothing is agreed
until everything is agreed” continues
to hold however, and significant risks
to the negotiation process remain. In
particular, major issues such as customs
arrangements have yet to be agreed, and
the positions reached in principle on the
items set out above may fail to be translated
into detailed agreements. Furthermore any
withdrawal agreement is subject to political
risk in the form of ratification by UK and
EU parliaments.
The emergent consensus on a
transition period has affected Record’s
implementation of its Brexit contingency
plan. Since the referendum, we have
developed a plan focused on continuing
to serve existing clients, and market
to new clients, across the remaining
EU27 countries. If this plan had to be
implemented for March 2019, Record would
anticipate relocating a modest number of
existing staff to Dublin by the fourth quarter
of 2018. Since the anticipated transition
period would preserve the legal and
regulatory status quo until December 2020,
we have paused the implementation of
some aspects of this plan. We are aware
though of the remaining risks, and are
further preparing for the risk that the
transition period falls through.
23
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information OPERATING
REVIEW
This section discusses Record’s
enhanced Passive Hedging service,
including its performance track record,
before reviewing investment performance
of Record’s other products.
Enhanced Passive Hedging
Over the past four years, Record has
developed an enhanced Passive Hedging
service. This aims to reduce the cost
of hedging by introducing new flexibility
into the implementation of currency
hedges, without changing the hedge ratio.
Typically this involves varying the hedge
implementation to reduce costs in two key
areas, being the direct costs of maintaining
the hedge (e.g. trading spreads), and the
interest rate differential embedded in the
forward contracts. While the strategy is
partly systematic, the episodic nature
of many opportunities exploited by the
strategy means it requires a higher level of
discretionary oversight than has historically
been associated with Passive Hedging.
The following table shows the total value
added relative to a fixed-tenor benchmark
for an enhanced Passive Hedging
programme for a representative account.
Value added by enhanced
Passive Hedging programme relative
to a fixed-tenor benchmark
Source: Record.
Product investment performance
Our hedging products are predominantly
systematic in nature. The effectiveness of
each client mandate is assessed regularly
and adjustments are made when necessary
in order to respond to changing market
conditions or to bring the risk profile of the
hedging mandate in line with the client’s
risk tolerance.
The performance of our Dynamic Hedging
product depends on how the foreign
currencies change in value relative to the
base currency of a client. During the year,
US investors saw gains from currency on
international assets when valuing positions
in US dollars, as the US dollar depreciated
against all G10 currencies. Record’s Dynamic
Hedging product decreased hedge ratios
in line with US dollar weakness, and allowed
clients to keep the majority of these gains.
Mandates for our UK-based Dynamic
Hedging clients performed as expected
in terms of allowing clients to benefit from
periods of strengthening foreign currencies,
whilst being generally protected against
periods of weakening foreign currencies.
The programmes generated mixed results
in line with differences in hedgeable weights
and active programme periods. Hedging
gains came primarily from hedging the
US dollar, while euro losses were contained
as hedge ratios were reduced over the
quarter in response to sterling movements.
Record’s principal Currency for Return
product during the year was the Currency
Multi-Strategy. This combines a number of
diversified return streams.
Record’s Multi-Strategy mandates
combining Carry, Emerging Market,
Momentum and Value strategies delivered
negative performance over the period.
Return for
year to
31 March
2018
Return
since
inception
0.12%
0.14% p.a.
24
Record plc Annual Report 2018Strategic report
Fund name
FTSE FRB10 Index Fund1
Emerging Market Currency Fund2
Gearing
1.8
1
Index/composite returns
FTSE Currency FRB10 GBP Excess return3
Record Multi-Strategy composite4
Return for
12 months to
31 March 2018
%
(2.61%)
1.01%
Return for
12 months to
31 March 2018
%
(1.47%)
(1.74%)
Return since
inception
% p.a.
1.44%
1.51%
Return since
inception
% p.a.
2.22%
1.73%
Volatility
since inception
% p.a.
7.04%
6.17%
Volatility
since inception
% p.a.
4.57%
2.41%
1. FTSE FRB10 Index Fund return data is since inception in December 2010, GBP base.
2. Record Currency – Emerging Market Currency Fund return data is since inception in December 2010, GBP base.
3. FTSE Currency FRB10 GBP Excess return data is since December 1987, GBP base.
4. Record Multi-Strategy composite is since inception in July 2012, showing excess returns data gross of fees in USD base and has been scaled to
a 4% target volatility.
25
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
OPERATING
REVIEW CONTINUED
Gearing
The Currency for Return product group
allows clients to select the level of exposure
they desire in their currency programmes.
The segregated mandates allow clients
to individually pick the level of gearing
and/or volatility target. The pooled funds
have historically offered clients a range of
gearing and target volatility levels.
It should be emphasised that in this case
“gearing” refers to the multiple of the
maximum size of the aggregate forward
contracts in the currency programme, to
the segregated mandate size or the pooled
fund’s net assets. This is limited by the
willingness of counterparty banks to take
exposure to the segregated client or pooled
fund. Gearing in this context does not
involve borrowing.
AUME development
AUME expressed in US dollar terms
increased by 7% during the year ended
31 March 2018, finishing at $62.2 billion
(2017: $58.2 billion).
AUME expressed in sterling decreased to
£44.3 billion (2017: £46.6 billion), broadly
reflecting sterling strength versus the US
dollar (+12%) and the Swiss franc (+7%)
over the twelve months.
AUME development bridge
Year to 31 March 2018 ($bn)
+3.8
+0.1
+1.3
-1.2
58.2
62.2
AUME at
1 April
2017
Net
client
flows
Portfolio
scaling
adjustment
Markets
FX
effects
AUME at
31 March
2018
AUME movements
The Group has seen net outflows of
$1.2 billion during the year arising from
inflows from both new and existing
clients of $9.9 billion offset by outflows
of $11.1 billion.
Passive Hedging AUME grew by 10% to
$53.0 billion at the end of the year (2017:
$48.2 billion). Marginal net outflows of
-$0.5 billion were more than offset by the
net impact of market factors (+$1.7 billion).
Movements in exchange rates contributed
a further +$3.6 billion.
Dynamic Hedging AUME decreased by
-$2.0 billion ending the year at $4.3 billion,
the majority of the decrease being
represented by net outflows of -$1.7 billion.
As reported during the year, Record’s
remaining UK-based Dynamic Hedging
clients either converted their mandates to
Passive Hedging or terminated in the first
half of the year as a result of the negative
returns and cash flows experienced linked
to persistent weakness in sterling following
the EU referendum. External factors had
an impact of -$0.3 billion.
The Currency for Return product reached
the fifth anniversary of its live track record
in July 2017 and saw AUME inflows of
+$0.6 billion in the first quarter, ending the
year at $1.6 billion (2017: $1.0 billion).
Multi-product AUME increased from
$2.5 billion to $3.0 billion at year end, with
inflows of +$0.3 billion from existing clients
and the net impact of external factors of
+$0.2 billion.
Equity and other market performance
Record’s AUME is affected by movements in equity and other market levels because substantially all the Passive and Dynamic Hedging,
and some of the Multi-product mandates, are linked to equity and other market levels. Market performance increased AUME by
$1.3 billion in the year to 31 March 2018.
Further detail on the composition of assets underlying our Hedging and Multi-product mandates is provided below to help illustrate more
clearly the impact of equity and fixed income market movements on these mandate sizes.
AUME composition by underlying asset class as at 31 March 2018
Equity
%
96%
29%
—%
Fixed income
%
—%
42%
—%
Other
%
4%
29%
100%
Dynamic Hedging
Passive Hedging
Multi-product
26
Record plc Annual Report 2018Strategic report
Forex
As 89% of the Group’s AUME is non-US dollar denominated, foreign exchange movements may have an impact on AUME when
expressing non-US dollar denominated AUME in US dollars. Foreign exchange movements increased AUME by $3.8 billion over the year.
This movement does not have an equivalent impact on the sterling value of fee income.
At 31 March 2018, the split of AUME by base currency was 15% in sterling, 58% in Swiss francs, 11% in US dollars, 14% in euros and
2% in other currencies.
Product mix
AUME composition by product
Dynamic Hedging
Passive Hedging
Currency for Return
Multi-product
Cash
Total
31 March 18
31 March 17
US $bn
4.3
53.0
1.6
3.0
0.3
62.2
%
7%
85%
3%
5%
—%
100%
US $bn
6.3
48.2
1.0
2.5
0.2
58.2
%
11%
83%
2%
4%
—%
100%
Aggregate Hedging AUME represented 92% of the total AUME, remaining broadly consistent with the prior year (2017: 94%).
However, the mix within Hedging products has changed with UK-based Dynamic Hedging clients choosing to either transfer to
lower-margin Passive Hedging or to terminate during the first half of the year as a result of negative returns and cash flows following
a period of sterling weakness after the EU referendum. Currency for Return and Multi-product strategies increased during the year
predominantly as a result of aggregate net inflows of +$0.9 billion, and together now account for 8% of total AUME (2017: 6%).
Client numbers
Client numbers reached 60 at 31 March 2018 (2017: 59). The net increase of one client over the year was comprised of seven new
clients and six clients whose mandates were terminated.
AUME composition by product and base currency
Base currency
31 March 18
31 March 17
31 March 18
31 March 17
31 March 18
31 March 17
31 March 18
31 March 17
Dynamic Hedging
Passive Hedging
Currency for Return
Multi-product
Sterling
US dollar
Swiss franc
Euro
Canadian dollar
Singapore dollar
Swedish krona
— GBP 1.7bn GBP 6.6bn GBP 7.8bn
—
—
—
—
USD 4.3bn USD 4.3bn USD 1.0bn USD 0.7bn USD 0.4bn USD 0.7bn USD 1.2bn USD 0.2bn
— CHF 2.6bn CHF 2.3bn
—
—
—
—
—
— CHF 32.2bn CHF 31.6bn
— EUR 7.1bn
EUR 5.4bn
—
—
—
—
—
— CAD 0.5bn CAD 0.4bn
— SGD 0.1bn
SGD 0.1bn
— SEK 2.6bn
SEK 2.4bn
—
—
—
—
—
—
—
—
—
—
—
—
27
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
FINANCIAL
REVIEW
The Group saw increased revenues
in the year and continues to invest
in resources to further enhance its
differentiated products and services.
Steve Cullen
Chief Financial Officer
Overview
The Group’s AUME grew to $62.2 billion
(+7%) representing the highest ever year
end AUME reported for the Group, when
expressed in US dollars.
Asset net outflows were -$1.2 billion (2017
net inflows: +$3.2 billion), and increases
in underlying equity and other market
movements totalled +$5.1 billion (2017:
+$5.4 billion). Client numbers remained
broadly consistent with last year, reaching
60 at the year-end (2017: 59).
The Group’s total revenue increased by 4%
over last year, notwithstanding the reversal
in part of last year’s tailwind due to sterling’s
depreciation following the UK referendum
vote and its effect on those Group revenues
denominated in the base currencies of our
clients, when retranslated into sterling.
The Group continued to invest in resources
to maintain the level of innovation and
product enhancement necessary to
maintain Record’s differentiated and
premium product and service offering over
the long term. Total operating expenditure
(excluding variable remuneration costs)
increased by 13% over the prior year,
including increases in both personnel costs
(+11%) and non-personnel costs (+15%).
Variable remuneration costs relating to
the Group Profit Share (“GPS”) scheme
decreased by 6% in line with the decrease
in operating profit (calculated before GPS).
The Group’s operating profit margin
decreased to 31% (2017: 34%) for the
year, and profit before tax decreased by 7%
versus the prior year.
Profit and loss (£m)
Revenue
Cost of sales
Gross profit
2018
23.8
(0.3)
23.5
Personnel (excluding GPS)
(7.9)
Non-personnel cost
(5.4)
Other income or expense
0.2
2017
(as restated)
23.0
(0.3)
22.7
(7.1)
(4.7)
0.2
Total expenditure
(excluding GPS)
GPS
Operating profit
(13.1)
(11.6)
(3.1)
7.3
(3.3)
7.8
Operating profit margin
31%
34%
Net interest received
Profit before tax
Tax
Profit after tax
—
7.3
(1.2)
6.1
0.1
7.9
(1.6)
6.3
28
Record plc Annual Report 2018Strategic report
Revenue
Record’s principal revenue is from
management fees earned from the provision
of currency management services.
Revenue analysis (£m)
2018 (as restated)
2017
Management fees
Performance fees
Other currency
services income
Total
23.5
—
0.3
23.8
22.7
—
0.3
23.0
Record charges management fees to
its clients based upon the AUME of
the product provided. Both Passive
and Dynamic Hedging typically have
management fee only arrangements
although Dynamic and, more recently,
enhanced Passive Hedging programmes
can be offered with a performance fee
element.
Record has historically offered both
management fee only, and management
fee plus performance fee structures on
Currency for Return mandates. Higher
performance fee rates usually accompany
lower management fee rates and vice versa.
Management fees are normally invoiced
on a quarterly basis, although Record
may invoice management fees for some
of its larger clients on a monthly basis.
Performance fees are invoiced on the
basis agreed with the client, and can
include quarterly, six-monthly or annual
performance periods.
Management fees
Management fees earned during the
year increased by 3% to £23.5 million
(2017: £22.7 million), notwithstanding
the impact of sterling strength during the
year on the conversion of non-sterling
denominated fees.
The year-on-year growth in Passive
Hedging continues, with Passive
Hedging management fees increasing
by 56% over the last three years, and
totalling £12.6 million for the year
(2017: £12.1 million). Passive Hedging
management fees comfortably cover the
annual personnel costs of £7.9 million
and the majority of the non-personnel
costs (excluding variable remuneration)
of £5.4 million. The increase in Passive
Hedging management fees was primarily
driven by the full-year effect of net AUME
inflows totalling $2.5 billion in the prior year,
alongside growth in equity and other market
levels (+$1.7 billion) over the year increasing
the underlying size of these mandates.
Dynamic Hedging management
fees reduced by 8% to £5.1 million
(2017: £5.6 million). Net outflows totalled
$1.7 billion over the year.
Inflows of $0.6 billion into Currency for
Return mandates in the year, alongside the
full year effect of inflows of $0.3 billion in
the prior year, resulted in an 80% increase
to related management fees which totalled
£1.8 million for the year. Total Multi-product
management fees remained at £4.0 million
for the year with fees from inflows of
+$0.3 billion early in the year offsetting the
reduced fees arising from net outflows of
$0.5 billion in the latter half of the prior year.
Management fees
by product (£m)
Dynamic Hedging
Passive Hedging
Currency for Return
Multi-product
Total
2018
5.1
12.6
1.8
4.0
2017
5.6
12.1
1.0
4.0
23.5
22.7
Management fees by product
(£m)
22.7
4.0
1.0
23.5
4.0
1.8
12.1
12.6
5.6
5.1
2017
2018
Multi-product
Currency for Return
Passive Hedging
Dynamic Hedging
Average management fee rates for all
product lines have remained broadly
constant throughout the year ended
31 March 2018.
Average management
fee rates by product (bps)
2018
2017
Dynamic Hedging
Passive Hedging
Currency for Return
Multi-product
14
3
16
18
12
4
15
20
Aggregate Currency for Return fee rates on
AUME can change as a result of increasing
or decreasing portfolio sizes for mandates
with defined volatility targets, where the fee
rate is linked to the target volatility. Certain
Multi-Strategy portfolio sizes have been
increased as volatility in the underlying
strategies has fallen and as diversification
between strategies has become greater,
reducing the volatility of the aggregate
return to the client. This effect may reverse
in future periods. Fee rates based on
volatility targets have not changed during
the period.
Performance fees
Performance fees can be earned from
Currency for Return, Dynamic Hedging and
now more recently from some enhanced
Passive Hedging programmes, dependent
on the individual client agreement. Record
had two Dynamic Hedging mandates
during the year incorporating a performance
fee component, both of which were for
UK-based clients. As reported in October
2017, Record’s remaining UK-based
Dynamic Hedging programmes ceased
without any accrued performance fees.
The first performance fees capable of being
earned under the enhanced Passive Hedging
programmes will be earned in the year ended
31 March 2019. There was no performance
fee earned in the year (2017: nil).
Other currency services income
Other currency services income totalled
£0.3 million (2017: £0.3 million) and consists
of fees from ancillary currency management
services including revenue from the
licensing agreement with WisdomTree.
Gains or losses made on derivative financial
instruments employed by the Group’s seed
funds or as a result of hedging activities,
and other FX adjustments which were
previously included within revenue as
“other income” have been re-presented in
expenditure as “other income or expense”.
Details of the effect of this presentational
change are provided in note 29 to the
financial statements.
29
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
FINANCIAL
REVIEW CONTINUED
Expenditure
Operating expenditure
The Group continues to invest in personnel
and resources to maintain its innovative
approach and its premium products and
levels of service. The enhanced Passive
Hedging service has been developed
with a view to saving costs and adding
value for those Passive Hedging clients
with the flexibility to take advantage of the
episodic nature of the opportunities arising.
This additional capability requires higher
technical expertise and resource than the
core Passive Hedging product alone.
Group operating expenditure (excluding
variable remuneration) increased by
13% to £13.1 million for the year
(2017: £11.6 million). Personnel costs
for the year increased to £7.9 million,
an increase of 11% over the prior
year reflecting the growth in employee
numbers, which rose from an average of
73 last year to 81 this year. The increase
in non-personnel costs of 15% was driven
predominantly by the full-year impact of the
increase in occupancy costs associated
with the new lease on larger offices for
Record’s headquarters in Windsor and the
move of the US office from Atlanta to New
York, both at higher market rentals than
was previously the case. The Group also
signed a lease for the new office in Zürich
during the year (see note 23 of the financial
statements for further detail). One-off costs
of £0.2 million were incurred in the year
relating to the Tender Offer in July 2017.
Group Profit Share Scheme
The Group operates a Group Profit Share
Scheme such that a long-term average
of 30% of underlying operating profit
before Group Profit Share (“GPS”) is
made available to be awarded to staff.
The Remuneration Committee has agreed
that for the year ended 31 March 2018,
the Group Profit Share Scheme is 30% of
pre-GPS operating profit. This represents
£3.1 million, a decrease of 6% over the
previous financial year and in line with Group
financial performance. Directors and senior
management in Record are required to take
a proportion of this remuneration in the
form of shares which are subject to lock-up
arrangements under the scheme rules.
30
Subject to shareholder approval, the final
ordinary dividend will be paid simultaneously
with the special dividend on 1 August 2018 to
shareholders on the register on 29 June 2018,
the ex-dividend date being 28 June 2018. All
ordinary and special dividends for the financial
year will be fully covered by earnings.
For the current and future financial years,
the Board intends to continue to pursue a
progressive dividend policy and to consider
the return of excess earnings over ordinary
dividends to shareholders, potentially in the
form of special dividends. On this basis,
such distributions to shareholders will be
considered on a “total distribution” basis,
such that the total distribution for any one
financial year will at least be covered by
earnings, whilst always being subject to
market conditions at the time, and to any
further excess capital assessed as required
by the Board.
Financial stability and
capital management
The Group’s balance sheet is strong and
liquid with total net assets of £26.6 million at
the end of the year, including current assets
managed as cash totalling £22.7 million.
The business remains cash generative, with
net cash inflows from operating activities of
£2.7 million for the year.
The Board’s capital policy is to retain
minimum capital (being equivalent to
shareholders’ funds) within the business
broadly equivalent to twelve months’ worth
of future estimated operating expenses
(excluding variable remuneration), plus
capital assessed as sufficient to meet
regulatory capital requirements and working
capital purposes, and for investing in new
opportunities for the business. To this end,
the Group maintains a financial model
to assist it in forecasting future capital
requirements over a three year cycle under
various scenarios and monitors the capital
and liquidity positions of the Group on an
ongoing and frequent basis. The Group has
no debt.
In July 2017, the Group returned £10 million
of excess capital to shareholders by a
repurchase of shares via a Tender Offer,
whilst retaining a significant capital
buffer in the business over its regulatory
requirements in line with the capital policy.
Operating profit and margins
Notwithstanding the increase to management
fees and revenue for the year, the continued
investment in resources and the increase in
non-personnel costs has resulted in a 6%
decrease in operating profit for the year to
£7.3 million, and a decrease in the Group
operating margin to 31% (2017: 34%).
Cash flow
The Group’s year end cash and cash
equivalents stood at £12.5 million
(2017: £19.1 million). The cash generated
from operating activities before tax was
£4.3 million (2017: £8.7 million); the
majority of the decrease year on year
is the decrease in cash of £4.1 million
following the loss of “control” and
subsequent deconsolidation of the Record
Currency – Emerging Market Currency Fund
(see note 12 for further details). £1.6 million
was paid in taxation (2017: £1.6 million)
and £6.8 million paid in dividends
(2017: £3.6 million). During the year the
Group repurchased 22.3 million shares
via a Tender Offer for cash of £10 million.
At the year end, the Group held money
market instruments with maturities
between three and twelve months, worth
£10.2 million (2017: £18.1 million). These
instruments are managed as cash by the
Group but are not classified as cash under
IFRS rules (see note 16 of the financial
statements for more details).
Dividends
Shareholders received an interim ordinary
dividend of 1.15 pence per share paid
on 22 December 2017, equivalent to
£2.3 million. As disclosed in the Chairman’s
statement on page 4, the Board is
recommending an increased ordinary
dividend in line with the progressive
dividend policy and in addition a special
dividend returning the excess of this year’s
earnings over the total ordinary dividend
and increased capital requirements, to
shareholders.
Consequently, the Board recommends
paying a final ordinary dividend of
1.15 pence per share, equivalent to
£2.3 million, and taking the overall
ordinary dividend to 2.30 pence per
share. Simultaneously, the Board is also
paying a special dividend of 0.5 pence
per share (equivalent to £1.0 million),
making the total dividends paid for the
year of £5.6 million equivalent to 92% of
total earnings of 3.03 pence per share.
The total ordinary and special dividend
paid in respect of the prior year ended
31 March 2017, were 2.00 pence per share
and 0.91 pence per share respectively.
Record plc Annual Report 2018Strategic report Our business model and Brexit
The British government invoked Article 50
on 29 March 2017, beginning the two-year
countdown to the UK withdrawing from
the European Union. Notwithstanding the
more recent progress made in negotiations,
uncertainty remains on the possible
outcomes and timeframes for many aspects
of the withdrawal.
Approximately 90% of our revenue was
sourced from clients based outside of
the EU27, so any decrease in our current
EU27-sourced revenue would prove
challenging, although not fundamental to
our ability to continue to operate. However,
the Group intends to take all reasonable
steps to maintain its ability to continue
to service current EU clients and to gain
more EU clients in the future. In this
respect, we continue to closely monitor the
progress of negotiations, and have made
sufficient progress with contingency plans
that we would expect would allow us to
achieve this objective, no matter what the
outcome of the negotiations, including any
transition period.
For this reason, we consider Brexit to
represent a level of risk to the continued
operation and viability of the business that
is lower than those principal risks used for
the stress scenarios and modelled through
the ICAAP.
Cautionary statement
This Annual Report contains certain
forward-looking statements with respect to
the financial condition, results, operations
and business of Record. These statements
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 in this Annual Report. Nothing in
this Annual Report should be construed
as a profit forecast.
Record Currency Management Limited
(“RCML”) is a BIPRU limited licence firm
authorised and regulated in the UK by the
Financial Conduct Authority (“FCA”), and is a
wholly owned subsidiary of Record plc. Both
RCML and the Group submit semi-annual
capital adequacy returns to its regulator
(FCA), and held significant surplus capital
resources relative to the regulatory financial
resource requirement throughout the year.
The Board has concluded that the Group is
adequately capitalised both to continue its
operations effectively and to meet regulatory
requirements, due to the size and liquidity
of balance sheet resources maintained by
the Group.
The Group held regulatory capital resources
based on the audited financial statements
as at 31 March, as follows:
Regulatory capital
resources (£m)
Core Tier 1 capital
2018
26.6
Deductions: intangible assets (0.2)
Regulatory capital resources 26.4
2017
36.8
(0.2)
36.6
Further information regarding the Group’s
capital adequacy information can be found
in the Group’s Pillar 3 disclosure, which
is available on the Group’s website at
www.recordcm.com.
Viability statement
In accordance with the UK Corporate
Governance Code, the Directors have
performed a robust assessment of the
viability of the Group considering the
business model, the Group’s expected
financial position, Board strategy and risk
appetite, the Group’s solvency and liquidity
and its principal risks. Based on this
assessment, the Directors have a current
and reasonable expectation that the Group
will continue to operate and meet its liabilities
as they fall due up to 31 March 2021.
The Directors review the financial forecasts
and position of the Group on an ongoing
basis. The capital and dividend policy
reflects the stated objectives of maintaining
a strong balance sheet whilst allowing the
Group the flexibility to adapt its products
and services to market conditions, or to
take advantage of emerging business
opportunities. The Group’s strategy and
principal risks are assessed and reviewed
regularly by the Board, as well as by the
Executive Committee and operational
sub-committees within the Group. Further
detail on the Group’s strategy and principal
risks is given in the Strategic report on
pages 10 and 32 respectively.
In assessing the viability of the Group the
Directors have considered the principal risks
affecting the Group, which underpin the
basis for the stress testing of the business
plan conducted as part of the Group’s
Internal Capital Adequacy Assessment
Process (“ICAAP”). The ICAAP uses severe
but plausible stress scenarios assuming the
crystallising of a number of these principal
risks to assess the options for mitigating
the impact on the Group, and for ensuring
that the ongoing viability of the Group
is sustained.
Some of the stress scenarios include the
following factors and assumptions:
• Market downturn – causing a decrease
to AUME (whether through outflows or a
reduction in value due to the link to other
financial markets) and hence revenue
and profitability;
• Operational risk event – causing
AUME outflows and potentially
reputational damage; and
• Market intervention – by a government
or regulatory body rendering some of the
Group’s products ineffective and hence
a reduction in AUME.
The scenarios assume mitigating actions
including the potential for non-critical cost
reductions and reassessing the dividend
policy, although any mitigating actions
would need to be reassessed depending
on the specific circumstances and expected
duration of the factors affecting the
business model at the time. The possibility
that the impact and timing of factors
potentially affecting the viability of the
Group could be more severe than assumed
plausible for the above testing should also
be noted.
The market and regulatory environment
in which the Group operates continues to
evolve at a pace. The Directors consider
a three-year horizon over which to assess
the viability of the Group to be appropriate
under such circumstances, since any further
planning horizon provides a greater level
of uncertainty to financial projections. This
approach is consistent with that of the ICAAP.
Upon review of the results of the stress
testing, the Directors concluded that the
Group would have sufficient capital and
liquid resources to withstand the stressed
scenarios and ensure its ongoing viability,
based on current information and the
three-year viability horizon.
31
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information RISK
MANAGEMENT
The Record culture is one of integrity and accountability;
core values that are embedded into the control environment
surrounding all areas of the business.
Capital adequacy risk is the risk that the
Group is unable to support the strategic
business objectives of the business due to
its minimum regulatory capital restrictions.
The Group has a capital and dividend policy,
which seeks to ensure that capital retained
is broadly equivalent to one year’s worth
of estimated future overheads (excluding
variable remuneration), in addition to
capital assessed as required for regulatory
purposes, for working capital purposes and
for investing in new opportunities for the
business. This policy ensures a significant
capital buffer over regulatory requirements,
and consequently capital adequacy risk is
not considered a significant risk in terms of
the top ten principal risks discussed further
in the tables below.
The business is also exposed to more
wide-ranging risks being conduct risk and
reputational risk. Conduct risk is defined
as the risk of causing detriment to a client
or damaging the integrity of the market
because of poor systems or processes, or
inappropriate judgement by staff in execution
of the Group’s business. The conduct of our
staff and the strength of our internal control
systems and processes are fundamental to
the effective operation of the Group’s risk
management framework. The conduct risk
is therefore evident and managed within
each individual category of risk, and when
combined equates to the overall conduct risk
of the Group. Consequently, conduct risk is
not considered a separate risk category.
Reputational risk is the risk of loss
or adverse impact arising from the
unfavourable perception of the Group
on behalf of clients, counterparties,
employees, regulators, shareholders or other
stakeholders. Reputational risk can manifest
as a consequence of an occurrence of
any of the Group’s principal risks, either in
isolation or together with other risks, and
is therefore considered to form an integral
part of each of the Group’s principal risks.
For this reason, reputational risk is not
considered a separate risk category.
Oversight
Oversight of the risk management
framework is governed by various
committees as delegated by the Board.
The Board has delegated authority to
the Audit and Risk Committee to provide
oversight and independent challenge
in relation to internal controls, risk
management systems and procedures
and external financial reporting.
The Executive Committee is the delegated
decision-making body for the day-to-day
operation of the business and includes
executive Board members and other
senior personnel.
The Board has delegated authority to the
Investment Committee to approve changes
to any of the Group’s investment processes
and to establish and maintain policies
for these processes. The Committee’s
membership includes Board members
and senior personnel including the Chief
Investment Officer, the Chairman, the Chief
Executive Officer, the Head of Client Team,
the Head of Portfolio Management and the
Head of Investment Strategy. Investment
Committee approval is required prior to
implementation of any new or amended
investment process or product.
The Board has ultimate responsibility for risk
and the oversight of the risk management
process within the business. Recognising
that risk is inherent in all of the Group’s
business dealings, and in the markets and
instruments in which the Group operates,
it places a high priority on ensuring
an integrated approach and a strong
risk management culture is embedded
throughout the Group, with accountability
at all levels within the business. Effective risk
management and strong internal controls
are integral to the Group’s business model
and are reflected in the risk management
framework adopted within the business.
Risk management framework
Risk appetite
As part of its responsibility for the risk and
oversight of the risk management process,
the Board determines the risk appetite
of the business. This defines the risk
tolerances within which the business must
operate in order to achieve our strategic
and business objectives, and takes into
account the interests of clients, employees
and shareholders as well as any capital
or any other regulatory requirements. The
Board’s ICAAP (Internal Capital Adequacy
Assessment Process) includes the risk
appetite statement and the process used for
the monitoring of key risks against defined
thresholds to ensure adverse trends or
levels of heightened risk are identified and
appropriately escalated for action if required.
The Board reviews and considers the
risk appetite and tolerances on a regular
and ongoing basis in light of strategic
plans, and changes in the business and
regulatory environment. The Board currently
considers the following categories of risk
as appropriate for determination of the risk
appetite of the Group:
• Capital adequacy risk
• Conduct risk
• Reputational risk
• Strategic and business risk
• Market risk
• Credit risk
• Operational risk
•
Investment risk
32
Record plc Annual Report 2018Strategic report External independent assurance for
shareholders is gained through the
statutory annual external audit process run
by PricewaterhouseCoopers LLP (“PwC”),
the Group External Auditor. The Group
also commissions the External Auditor to
perform the annual service auditor’s report
under both the International Standard on
Assurance Engagement (“ISAE”) 3402 and
the American Institute of Certified Public
Accountants Attestation Standard AT-C
Section 320 (“AT-C 320”). In performing
this work, PwC reports its opinion on
the description of internal controls with
respect to the investment management
and information technology activities, the
suitability of the design of the relevant
controls, and the operating effectiveness
of specific controls for the period 1 April
to 31 March, in line with the Group’s
financial year.
The Group considers the strong capital
buffer retained under the capital and
dividend policy to effectively provide
an additional line of defence in terms
of mitigation when considering its
principal risks.
Principal risks
The following section shows the Board’s
assessment of the top ten inherent risks
faced by the business during the year
and currently, alongside an explanation
of how these risks have been managed or
mitigated down to a net risk position in line
with the Group’s risk appetite, and how the
significance of the risk has changed during
the year. These risks fall into a number of
distinct categories and the means used to
mitigate them are both diverse and relevant
to the nature of the risk concerned.
Embedded culture of integrity
and accountability
External independent
assurance activity
3rd line of defence
Internal audit (independent
assurance – Deloitte)
2nd line of defence
Control and oversight functions
Statutory
external audit
(independent
assurance –
PwC)
1st line of defence
Business operations
and support
ISAE 3402
and AT-C 320
service
auditor’s
report on
internal
controls
(independent
assurance –
PwC)
The Board has established a Risk
Management Committee which is chaired
by the Chief Operating Officer and has
the Chief Financial Officer, the Head of
Operations, the Head of Trading, the
Head of Portfolio Management, the
Head of Portfolio Implementation, the
Head of Front Office Risk Management
and the Head of Compliance and Risk
as members. As prescribed in terms of
reference approved by the Audit and
Risk Committee, the Risk Management
Committee continually reviews existing and
new risks, and the nature of any operational
incidents with the objective of ensuring that
adequate systems and controls are in place
to minimise and preferably eliminate such
incidents and their impact on clients and
the Group.
Lines of defence
The Record culture is one of integrity
and accountability; core values that are
embedded into the control environment
surrounding all areas of the business.
The overall risk management framework is
underpinned by three lines of defence and is
overseen by the Audit and Risk Committee,
as delegated by the Board.
Within this framework the first line of
defence provides management assurance
and rests with line managers within
their specific departments and with
senior managers responsible for the
implementation and maintenance of
higher-level controls to ensure adherence
to quality standards and regulatory
requirements. Functions such as Front
Office Risk Management, Compliance and
Risk, Legal, HR and Finance provide the
second line of defence through the drafting,
implementation and monitoring of policies
and procedures to align with best practice,
to ensure compliance and to provide
assurance and oversight for the Board and
the Audit and Risk Committee. The third line
of defence is performed by internal audit
which provides independent assurance
on the adequacy and effectiveness of
the Group’s risk management, control
and governance processes providing
recommendations to improve the control
environment. Internal audit is provided by
Deloitte LLP (“Deloitte”).
33
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information RISK
MANAGEMENT CONTINUED
Strategic risks
The risk of failing to identify and implement the correct strategy would impact expected outcomes, earnings and profitability of the Group.
This risk is influenced by internal and external factors.
Risk ownership:
Delegated to: Record plc Board and Executive Committee
Risk
How risk is managed
Board
risk rating
Medium
Change
Record has established a Brexit Working Group
to monitor ongoing progress with EU negotiations.
A contingency plan has been prepared, including
engagement with the Central Bank of Ireland, with
a view to ensuring the continued access to current
and future EU27-based clients. Notwithstanding the
temporary pause to the implementation of this plan
due to the probable extension of the transition period
to December 2020, we continue to prepare alternative
plans in the event that the transition period does
not materialise.
Focus on bespoke solutions and added-value
to differentiate products within the market.
Medium
Focus on offering premium service to clients
differentiates Record from competition and builds
long-standing and “trusted adviser” relationships.
Continued investment into systems and process
enhancements, plus flexible internal structure can
accommodate new obligations (e.g. regulatory
reporting) in most efficient way.
Brexit
Description of risk: the risk that Record will not
be ready to comply with post-Brexit requirements
in respect of the legal and structural framework
under which banking, trading and regulatory rules
will operate. Brexit may also reduce the ability of the
business to attract and retain talented employees.
Potential impact: the inability to service existing
clients and to attract new clients from EU27
countries may result in outflows and the loss of
future potential revenue streams. A lack of talent
may also affect future product innovation and
succession planning in the business.
Margin compression
Description of risk: the risk of a lower fee
environment due to changes in investor demand
or competitive pricing pressures, and/or rising
costs within the industry arising from regulatory
requirements and/or technological advances.
Potential impact: reduced fee rates and/or
increased costs lead to decreased margins.
34
Record plc Annual Report 2018Strategic report Business risks
The risk of the business being unable to generate fee income and to control costs in line with business plans. This risk is influenced by
internal and external factors.
Risk ownership:
Delegated to: Record plc Board and Executive Committee
Risk
How risk is managed
Concentration risk
Description of risk: the risk of concentration either
by product, client type or geographical location leading
to over-reliance on any one category of revenue.
Record has a relatively small number of high-value
clients. For the year ended 31 March 2018, Record’s
largest client generated 17% of revenue, and the
largest five client relationships generated 60% of
revenue.
For the year ended 31 March 2018, 30% of
revenues derived from Passive Hedging for Swiss
pension funds, which are required by regulation
to hedge currency risk above a certain threshold
– this regulation could be abolished.
Potential impact: Record’s products are all
currency management based. A move away from
currency by its core client base or a high-value
client, or a change in Swiss regulation could result
in material outflows and loss of revenue.
People and employment risk
Description of risk: the inability to attract or
retain key employees could impact the Group’s
ability to support business activities or achieve
strategic objectives.
Potential impact: not supporting business
activities or achieving the strategic objectives of the
Group would lead to a material negative impact on
corporate performance.
Diversification of investment capabilities across
risk-reducing and risk-taking products to reduce
single event/product exposure.
Record’s non-hedging revenues increased from 22%
to 25% of management fees during the year, and the
Multi-Strategy product reached the fifth anniversary
of its live track record leading to the launch of the
Multi-Strategy fund in the final quarter of the year.
Record’s clients are institutional and diverse, including
government and public pension funds, charities,
foundations, endowments, family offices, other fund
managers and corporate clients.
Record’s commitment to client services excellence,
the transparency of the investment process and the
regular reporting and face to face contact with clients
is integral to retention.
The Group seeks to build long-term and close
trusted adviser relationships with its clients, which are
intended to assist in retaining such mandates even in
the event of regulatory change.
The Group has continued to invest in resources to
broaden capabilities in research, investment and client
servicing thereby reducing the risk associated with the
loss of key talent.
The Group considers that its office environment and
culture, as well as its remuneration policy and in
particular the operation of the Group Profit Share and
Share Schemes promotes key personnel retention and
effective risk management.
The Group’s investment process is steered by an
Investment Committee comprising members of the
Board and senior management and all products are
managed on a predominantly systematic process
which is not reliant on any individual employee.
Board
risk rating
Medium
Change
Medium
35
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information RISK
MANAGEMENT CONTINUED
Market risk
The risk of any impact on the Group’s financial condition due to adverse market movements caused by market variables such as interest
rates, FX prices, etc.
Risk ownership:
Delegated to: Record plc Board and Executive Committee
Risk
How risk is managed
Board
risk rating Change
Low
The Group trades on behalf of clients in currency
and related instruments with a large panel of banking
counterparties. Currency is a particularly deep and liquid
market that has continued to provide sufficient daily
liquidity, despite disruptive market “shock” events such
as the removal of the Swiss franc peg in January 2015,
and the result of the UK referendum in June 2016.
Market liquidity risk
Description of risk: the risk of reduced or
constrained market liquidity affecting Record’s
investment process, which relies on trading a high
turnover of client positions in both size and volume.
In recent years although liquidity has routinely been
sustained in normal market environments, it has
become more fragile and less reliable in stressed
market conditions.
Potential impact: a reduction in market liquidity
could affect Record’s ability to meet its contractual
obligations to clients, resulting in outflows and
reductions to revenue.
Treasury risk
Description of risk: more than 80% of Group
revenues are denominated in a currency other
than sterling, the Group’s functional and reporting
currency, yet the Group’s cost base is predominantly
sterling based.
Potential impact: periods of sterling strength may
have adverse effects on Group profit.
Description of risk: the Group invests a limited
amount of its resources in seed funds, exposing
it to credit risk and foreign exchange risk
Potential impact: may have adverse effects
on Group profit.
On a regular and ongoing basis, the Group hedges the
non-sterling income not capable of being utilised for
costs arising in the same currency, from the date that
income is accrued until the anticipated date of receipt
by using forward fixed rate currency sales contracts.
High
Monthly reporting of all balance sheet exposures to
the Executive Committee and Board.
The Group’s level of investment in seed funds is
strictly limited in accordance with the Board’s risk
appetite statement.
Credit risk
The risk that management does not appropriately mitigate balance sheet risks or exposures potentially resulting in an adverse impact
on the financial performance or position of the Group.
Risk ownership:
Delegated to: Chief Financial Officer
Risk
How risk is managed
Credit risk
Description of risk: the risk that unexpected losses
may arise as a result of the Group’s clients or market
counterparties failing to meet their obligations to pay.
Potential impact: may lead to reduced profitability
and earnings.
Record’s dedicated Cash Management Team
manages the Group’s overall credit exposure
in accordance with strict levels of exposure by
instrument, counterparty, tier and duration.
The Group has adopted a credit risk policy to manage
its credit risks, under which it follows clear counterparty
diversification and minimum credit rating criteria.
Monthly reporting of all balance sheet exposures to
the Executive Committee and the Board.
Record has predominantly large institutional clients,
including government and public pension funds, which
typically offer less credit risk.
Board
risk rating
Change
Low
36
Record plc Annual Report 2018Strategic report Operational risk
Operational risks are broad in nature and inherent in all activities and processes performed across the business, and all other businesses.
They include the risk that operational flaws result in business losses – through error or fraud, the inability to capitalise on market
opportunities, or weaknesses in systems and controls.
Risk ownership:
Delegated to: Risk Management Committee (“RMC”)
Risk
How risk is managed
Technology and information
security risk
Description of risk: the risk of failure of the Group’s
technology and support systems, or penetration of
such systems by third parties.
Potential impact: consequential loss of data, or the
significant disruption to, or prevention of the Group’s
ability to operate, which could cause negative
financial consequences.
Operational control environment
Description of risk: the risk of errors in
execution and process management, dealing,
portfolio implementation, settlement, managing
bespoke requirements and reporting and the
risk of non-compliance including monitoring of
investment breaches.
Potential impact: such errors or non-compliance
would potentially lead to negative financial
consequences.
The Group has developed comprehensive disaster
recovery (“DR”) and business contingency plans.
These cover scenarios from server failure to
destruction of the Group’s offices. Alternative office
facilities and equipment are available at a DR site
should the premises be compromised. DR procedures
are tested on a regular basis at the site of the disaster
recovery provider.
Information technology policies and technical
standards are deployed across the Group, including
induction and security awareness training.
Cyber risk is a recurring item on the annual internal
audit plan of the business and cyber-related KPIs
are reported in Management and Board information
packs on a monthly basis. Regular review of the
systems and controls in place ensures application
of latest best practice and security procedures, as
demonstrated during the year with the implementation
of next generation end point protection across
business systems.
During the year, the training programme for employees
was strengthened with the introduction of regular
“phishing” tests to improve awareness of such threats
as they evolve.
A dedicated portfolio management team oversees the
investment process and a dedicated and independent
Front Office Risk Management team provides
post-trade compliance assurances, including changes
to any static data which may impact the behaviour of
the systematic processes.
Record’s compliance and risk department regularly
reviews adherence to formal and established
procedures via a structured monitoring programme,
reporting directly to the RMC.
Automated post-trade compliance tests are used to
monitor whether programmes are running in line with
expectations, and identify any potential issues that
may need to be resolved in a timely manner.
Record’s internal audit function reports independently
to the Audit and Risk Committee and reviews
higher-risk operational departments on a cyclical
basis, ensuring regular independent coverage of
deemed higher-risk operational areas.
Record prepares an annual ISAE 3402 and
AT-C 320 service auditor’s report on internal
controls. The contents of this report, which has been
independently reviewed and tested by PwC, provide
assurances of the Group’s procedures and controls
to mitigate operating risk.
Board
risk rating
Change
High
Medium
37
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information RISK
MANAGEMENT CONTINUED
Investment risk
The risk that long-term investment performance is not delivered, damaging prospects for winning and retaining clients, and putting
management fee rates under pressure.
Risk ownership:
Delegated to: Investment Committee
Risk
How risk is managed
Board
risk rating
Change
Product underperformance risk
Description of risk: risk of sustained periods of not
delivering target investment performance.
Experienced Investment Committee meets regularly.
Medium
Dedicated currency management research and
investment focus.
Potential impact: underperformance could result in
AUME outflows and client losses with resultant loss
of revenue.
Diversification, both through offering multiple
strategies, and through a client base which is diverse
in geography and base currency.
Remuneration policy links senior management’s
remuneration to long-term performance of the Group.
38
Record plc Annual Report 2018Strategic report CORPORATE SOCIAL
RESPONSIBILITY
The Board recognises that, through its actions, it has a direct
impact upon its employees, the community and the environment.
In conducting its business operations,
the Group has a responsibility to its
stakeholders and the environment.
Our stakeholders, with whom we maintain
an ongoing dialogue, include shareholders,
clients, employees, regulators and the
local community.
Our approach to corporate social
responsibility is built around three key areas:
• Community
• Workplace
• Environment
Community
During the course of the year, the Group
made charitable donations totalling
£13,658. Our charitable giving is focused on
employee choice, with the Group matching
employee donations and sponsorship. We
also provide financial assistance to students
studying at Balliol College, Oxford through a
half-bursary scheme, which provides grants
to students who aim to pursue ambitions
which will benefit the wider community, for
example in medical or charitable fields.
The Group continues to encourage
employees to participate in fundraising
activities for charitable causes. This year
employees participated in a variety of
events, including charity lunches and a
number of dress-down days.
In addition to these events, a group
of employees participated in a
volunteering day at a day centre for
SHOC (Slough Homeless Our Concern).
Employees assisted with a number of
tasks including checking visitors into the
day centre and cooking meals, as well as
assisting with cleaning and maintenance
of the centre itself.
The Group has an established internship
programme for students and during the
year we welcomed interns from Oxford
University, London School of Economics,
ETH Zürich, University of Warwick, Royal
Holloway and University of Bristol.
Charitable donations
(£’000)
16.1
14.7
13.7
2016
2017
2018
Human rights
Record complies fully with appropriate
human rights legislation in the countries
in which it operates.
39
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information CORPORATE SOCIAL
RESPONSIBILITY CONTINUED
Workplace
Record is committed to providing a working
environment in which bright, dynamic and
committed individuals thrive. We believe
that investing in our staff and developing
their potential is key to the success of the
business and our policies and practices
reflect this.
The Group’s UK offices have been designed
to allow all departments to work together
in an open plan environment. The open
plan office allows ease of communication
between departments, as well as
enabling staff to work closely with senior
management.
In addition to the open plan office, the UK
office also has an additional floor which has
been designed to accommodate additional
meeting rooms as well as a generous
breakout area for staff, with a large kitchen
area and space for recreational and
fitness activities. The office environment is
indicative of the Group’s commitment to
staff welfare and to providing a happy and
stimulating working environment.
The office environment and culture
promotes staff development and training.
All staff are invited to participate in monthly
company update meetings which are led
by the Chief Executive Officer. The Group
also provides study support to employees
who wish to pursue relevant professional
qualifications. The Board has established a
staff-run welfare committee which organises
team-building and other social events
enhancing interaction between different
departments and different grades within
the business.
In addition, the Group provides a number
of different benefits to employees including
pension, private medical cover, life
insurance, permanent health insurance and
subsidised gym membership. All employees
are rewarded through the Group Profit
Share Scheme and have the opportunity to
acquire shares in Record plc through this
scheme, as well as through the Record plc
Share Incentive Plan.
Staff retention
(%)
88%
83%
93%
2016
2017
2018
Equal opportunities and diversity
The Group’s objectives include ensuring
that all staff are provided with equal
opportunities and that the workplace is
free of discrimination. The Group aims to
ensure that the recruitment process is fair
and is carried out objectively, systematically
and in line with the requirements of
employment law.
The Group ensures all staff are aware that
it is not acceptable to discriminate, harass
or victimise someone, and that it is also
unlawful and such behaviour will not be
tolerated under any circumstance.
The Group believes that valuing what is
unique about individuals and drawing on
their different perspectives and experience
will add value to the way the Group does
business. By accessing, recruiting and
developing talent from the widest possible
pool the Group can gain an insight into
different markets and better support
client needs. The Group aims to create
a productive environment, representative
of different cultures and groups, where
everyone has an equal chance to succeed.
The gender diversity within the Group is
shown below:
As at
31 March 2018
Female
Male
Board Directors
3
33%
6 67%
Senior
management
Other staff
All employees
2
13%
14 87%
25
30
42%
35 58%
35%
55 65%
40
Record plc Annual Report 2018Strategic report Environment
Gross CO2 emissions
(Tonnes)
Gross CO2 emissions
per head
(Tonnes)
258
366
348
5.3
6.7
5.3
Scope 3
Scope 2
76
67
58
2016
2017
2018
Gross CO2 emissions
by activity
(Tonnes)
79
68
215
218
86
153
95
138
120
2016
2017
2018
Other
Business travel
Commuting
2016
2017
2018
The Group seeks to minimise its carbon
footprint through recognising the
environmental impact of its activities,
reducing that impact through responsible
procurement of goods and services, and
offsetting its remaining carbon emissions.
The Group first assessed its carbon
footprint in July 2006, and has offset its
carbon emissions since then through
investment in renewable energy projects,
currently in Kenya.
The Group’s annual emissions1 (before
offset) have been calculated using the
WRI/WBCSD Greenhouse Gas Protocol.
Scope 2 emissions principally relate to
electricity and heat and Scope 3 emissions
principally relate to travel. Scope 3
emissions accounted for 86% of emissions
(2017: 85%).
The Company’s Strategic
report is set out on pages
2 to 41 of the Annual
Report, and is comprised
of the Introduction, Strategy
and Business review, Risk
Management and Corporate
Social Responsibility report.
The Strategic report outlines
our performance against
our strategic objectives,
performance and financial
position, as well as our
outlook for the future.
The Strategic report was
approved by the Board on
14 June 2018 and signed
on its behalf by:
James Wood-Collins
Chief Executive Officer
1. Gross emissions data relates to the calendar year preceding the given financial year.
41
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information Record plc Annual Report 2018
Governance
CORPORATE GOVERNANCE
Chairman’s introduction
Board of Directors
Corporate governance report
Nomination Committee report
Audit and Risk Committee report
Remuneration report
Directors’ report
Directors’ responsibilities statement
43
44
46
50
52
56
71
73
Compliance statement
The Company complied with the provisions of the UK Corporate
Governance Code published in April 2016, which applied
throughout the financial year ended 31 March 2018.
42
CHAIRMAN’S
INTRODUCTION
The Board has continued to work closely
with the Group’s highly experienced
management team to maintain its strong
governance framework which effectively
supports Record’s operational teams in
delivering a high-quality service to all our
clients. As a Board we have always believed
that the long-term growth and success of
the Record Group is underpinned by our
focus on culture, setting the tone from
the top and establishing robust corporate
governance practices.
Succession planning has been a focus
of the Board over the last 18 months as
we have conducted a search for a new
independent director to replace David
Morrison who will cease to be deemed
independent on 1 October 2018. I am
delighted to confirm that we have identified
and appointed a highly skilled individual,
Tim Edwards, who I believe will add great
value to the Board and bring extensive
experience and good business insight to
the Record Group.
The UK and global regulatory and
governance environments have continued
to evolve at a rapid pace over recent
months but I am confident that the Group’s
governance arrangements remain both
appropriate and highly effective and that
going forward the Group will embrace
further regulatory and governance change
in its drive to best serve its stakeholders –
clients, shareholders and employees.
Neil Record
Chairman
14 June 2018
Board overview
The Board is responsible for the stewardship of the Company. Further information
on the corporate governance framework is provided on pages 46 to 49.
BOARD
BOARD COMMITTEES
NOMINATION
REMUNERATION
AUDIT AND RISK
OPERATIONAL COMMITTEES
EXECUTIVE
INVESTMENT
RISK MANAGEMENT
Investment Management Group
Portfolio Management Group
OPERATIONAL SUB-COMMITTEES
43
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information BOARD OF
DIRECTORS
The Board continues to work hard to uphold Record’s values
of diligence, transparency, accountability and probity, and
to sustain them within the Group’s culture.
Neil Record
Chairman
Neil Record founded Record in 1983 and has
been its principal shareholder and Chairman
since then. Prior to founding Record he was an
economist at the Bank of England and worked in
the commodity and currency trading department
at Mars Inc’s UK subsidiary.
N
He is the author of numerous books and articles
on currency and other risk management topics
and is a frequent speaker at industry conferences
and seminars worldwide.
James Wood-Collins
Chief Executive Officer
James Wood-Collins joined Record in 2008
as a senior member of the Client Team.
He was appointed as Chief Executive Officer
in October 2010.
He was previously at J.P. Morgan Cazenove
where he had been a Managing Director advising
financial institutions on M&A, IPOs and related
corporate finance transactions.
Steve Cullen
Chief Financial Officer
Steve Cullen joined Record in October 2003,
and was appointed to the Board and made Chief
Financial Officer in March 2013. Prior to joining
Record, he qualified as a Chartered Accountant
in 1994 and gained 15 years of audit experience
within practice.
Prior to being appointed to the Board, Steve led
the Finance team for over nine years, reporting
directly to the Chief Financial Officer, and was
part of the internal management team at Record
involved in the preparation for admission to
trading on the London Stock Exchange in
December 2007.
Leslie Hill
Head of Client Team
Leslie Hill joined Record in 1992 and was
appointed Head of Sales and Marketing in 1999.
Her prior experience includes working at Lloyds
Bank and Merrill Lynch where she was Director
and Head of Corporate Foreign Exchange
Sales worldwide.
Bob Noyen
Chief Investment Officer
Bob Noyen joined Record in 1999 with
responsibility for Investment and Research.
He chairs Record’s Investment Committee and
the Investment Management Group. He previously
worked as Assistant Treasurer for Minorco (part of
Anglo American plc).
44
Record plc Annual Report 2018Governance David Morrison
Senior Independent Director
A N R
*
David Morrison was appointed as a
Non-executive Director in October 2009. David is
the founder of Prospect Investment Management,
a venture capital advisory firm which was
responsible for several investments on behalf of a
small group of investors.
He is currently Chairman of both Be Heard
Group plc and Maris Ltd, an investment holding
company active in East Africa, and on the board
of several private companies with which Prospect
is associated.
Jane Tufnell
Non-executive Director
A N R
*
Jane Tufnell was appointed as a Non-executive
Director in September 2015. Jane co-founded
the investment management firm Ruffer in 1994,
and served on its management board until her
retirement in June 2014.
She is the senior independent director of
The Diverse Income Trust plc, Chairman of
Odyssean Investment Trust plc, and has been
an independent Non-executive director of
JPMorgan Claverhouse Investment Trust plc
since October 2013.
Rosemary Hilary
Non-executive Director
Rosemary Hilary was appointed as a
Non-executive Director in June 2016. She was
previously Chief Audit Officer of TSB Bank,
and prior to that she held a number of senior
financial services regulatory roles, transitioning
from the Bank of England to the Financial
Services Authority and then to the Financial
Conduct Authority.
Tim Edwards
Non-executive Director
*A N R
Rosemary is also a Non-executive Director of
Willis, the global broker, Vitality Life and Vitality
Health, and the Pension Protection Fund. She is
a member of the MBA Advisory Board at Cass
Business School and a 30% Club mentor.
A N R
Tim Edwards was appointed as a
Non-executive Director in March 2018.
Tim is Chairman of Storm Therapeutics Limited,
spun out of the Gurdon Institute, Cambridge
University, and a Director of Ervaxx Limited,
a company developing biological insights licensed
from the Francis Crick Institute, London.
Tim is also a Trustee of the Institute of Research
in Schools, and was previously a member of
the Governing Board of Innovate UK, the UK’s
innovation agency; and a Non-executive Director
of the Cell Therapy Catapult, and Chair of the UK
BioIndustry Association.
Gender diversity
As at year end and as at the
date of report
MALE
67%
FEMALE
33%
Board tenure
0-3 yrs
33%
4-6 yrs
11%
7+ yrs
56%
A Audit and Risk Committee
N Nomination Committee
R Remuneration Committee
* Chair
45
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information CORPORATE
GOVERNANCE REPORT
Corporate governance framework
The Board has established a framework of
committees and sub-committees to ensure
robust corporate governance practices
throughout the business. The Board is
confident that this structure is appropriate
and that the delegation of responsibilities
allows the business to operate in a
structured manner and to respond rapidly
when issues arise.
The Board of Directors
Board responsibilities
The Board has a schedule of matters
specifically reserved to it for decision
and approval, which includes but is not
limited to:
• determining the Group’s long-term
strategy and objectives;
• significant capital expenditure;
• the Group’s annual and interim reports
and preliminary announcements;
• setting interim dividend and
recommendation of final dividend
payments;
• effectiveness of internal controls;
• authorisation of Directors’ conflicts or
possible conflicts of interest; and
• communication with shareholders and
the stock market.
Board membership
The Board is headed by Neil Record
(Chairman), with the Executive Directors,
James Wood-Collins (Chief Executive
Officer), Steve Cullen (Chief Financial
Officer), Bob Noyen (Chief Investment
Officer) and Leslie Hill (Head of Client Team).
There are currently four Non-executive
Directors, David Morrison, being the
Senior Independent Director, Jane Tufnell,
Rosemary Hilary and Tim Edwards. The
biographical details of the Board members
are set out on pages 44 and 45.
Tim Edwards was appointed to the Board
on 21 March 2018.
Corporate culture
Since the business was first established in
1983 Record has endeavoured to put the
interests and needs of our clients first and
this cultural belief is encouraged and deeply
embedded within all business functions. The
Board has worked hard to ensure that the
importance of client focus through diligence,
transparency, accountability and probity has
been disseminated to all staff, contractors
and consultants across the Group.
The UK Corporate
Governance Code
The Board has adopted the principles
established in the UK Corporate
Governance Code April 2016 and its
previous versions (all referred to as “the
Code”) since its Admission to the Official
List of the UK Listing Authority in December
2007. Copies of the Code can be obtained
from the FRC’s website at www.frc.org.uk.
Listed companies are required under the
Financial Conduct Authority Listing Rules
either to comply with the provisions of the
Code or explain to investors in their next
annual report why they have not done so.
As a non-FTSE 350 company, Record plc
is classed as a smaller company under the
Code. The Group has been in compliance
with the Code since Admission, except
in particular limited circumstances where
the provisions apply specifically to FTSE
350 companies:
• the Board does not comprise a majority
of independent non-executive directors
on an ongoing basis (B.1.2.);
• the annual Board performance evaluation
is not externally facilitated (B.6.2.);
• Directors are not re-appointed on
an annual basis (B.7.2.).
In all such instances Record plc has
reviewed the appropriateness of the
provisions to determine whether they should
be applied or if departure is justified. The
Board is satisfied that these decisions are
in the best interest of the business and
are not detrimental to the high standards
of corporate governance they have
established for the Group.
The departures from the Code are fully
explained in the following narrative.
On an ongoing basis at least half the Board
members have not been independent
Non-executive Directors as required by
the Code for FTSE 350 companies but the
Board does comply with the Code’s provision
for smaller companies to have at least two
independent Non-executive Directors. The
Board considers that the existing composition
and the planned structure to have three
independent Non-executive Directors going
forward is appropriate given the current size
and structure of the business.
All Directors have access to independent
professional advice, when required, at the
Company’s expense as well as to the advice
and services of the Company Secretary.
The division of responsibilities between
Chairman and Chief Executive Officer is
clearly established, set out in writing and
agreed by the Board.
Role of the Chairman
The Chairman is responsible for leadership
of the Board. He is also responsible for
overseeing the activities of the Chief Executive
Officer and providing advice, guidance and
support to the Executive Team. He works with
the Board to develop Company strategy and
support its implementation. The Chairman
is a principal ambassador of Record and a
guardian of the Group’s ethos and values.
Role of the Chief Executive Officer
The Chief Executive Officer is responsible
for the executive management of the Group
to grow the business profitably while acting
in the interests of all stakeholders – clients,
shareholders, employees and industry
regulators and upholding the core values
of Record.
46
Record plc Annual Report 2018Governance Role of the independent
Non-executive Directors
The Non-executive Directors are responsible
for upholding high standards of integrity and
probity; providing constructive challenge and
helping to develop proposals on strategy.
The Senior Independent Director’s role is to
act as a sounding board for the Chairman,
oversee the evaluation of the Chairman’s
performance and serve as an intermediary
for the other Directors if necessary. He
is also available as an additional point
of contact for shareholders and other
stakeholders should they wish to raise
matters with him rather than the Group
Chairman or the Chief Executive Officer.
In determining the independence of
Non-executive Directors, the Board has
taken into consideration the guidance
provided by the Code. The Board considers
David Morrison, Jane Tufnell, Rosemary
Hilary and Tim Edwards to be independent
at the current time. Neil Record is a
Non-executive Chairman, although he
is not considered to be independent.
Re-election of directors
Under the Code, all directors should
be submitted for re-election at regular
intervals, subject to continued satisfactory
performance. The Code states that
all directors of FTSE 350 companies
should be subject to annual election by
shareholders. All other directors should
be subject to election by shareholders
at the first Annual General Meeting after
their appointment, and to re-election at
the Annual General Meeting thereafter at
intervals of no more than three years.
Under the Company’s Articles of
Association, the minimum number of
Directors shall be two and the maximum
shall be twelve. Directors appointed by the
Board must offer themselves for election
at the next Annual General Meeting of
the Company following their appointment
but they are not taken into account in
determining the Directors or the number
of Directors who are to retire by rotation
and stand for re-election at that meeting.
The minimum number of Directors who
should retire by rotation is one third.
The Board has reviewed these provisions
in the Articles against the recommendations
of the Code and has determined that, given
the size and structure of the business,
the Articles are appropriate and annual
re-election is unnecessary.
Board member diversity
The Board has three female members in
a board of nine and thus women make up
33% of the Board. It is the Board’s aim to
maintain a diverse mix of skills, experience,
knowledge and backgrounds across its
members to ensure that the Board operates
effectively. The Board’s opinion is that the
current composition of members meets
these criteria and is therefore appropriate
for the business at the present time. Future
executive director succession planning will
take into account the benefits of diversity
including gender diversity as set out in the
Group’s Board Diversity Policy. Diversity in
the workplace is detailed on page 40.
Board meetings
The Board met six times between
1 April 2017 and 31 March 2018 to
review financial performance and to follow
the schedule of matters reserved for its
decision and approval. Comprehensive
Board papers, comprising an agenda and
formal reports and briefing documents
are sent to Directors in advance of each
meeting. Directors are regularly informed by
senior executives and external advisers on
the Group’s affairs, including commercial,
regulatory, legal, corporate governance
and other relevant matters.
Appropriate and timely notice is given of all
Board meetings and all Directors receive
information in advance so that if they are
not able to attend their input can be tabled
and taken into consideration. The Board
has twice-yearly offsite strategy meetings
and additional meetings as required to
address specific issues. Any concerns
raised by Directors which are not resolved
are recorded in the Board minutes. No such
matters were noted during the year ended
31 March 2018.
Board meeting and Committee meeting attendance
Directors are expected to attend all meetings of the Board and Committees on which they serve. Details of Board and Committee
attendance are included in the table below.
Board/Committee member
Board
Audit and Risk Committee
Remuneration Committee
Nomination Committee
Meetings in the year
Neil Record
David Morrison
Jane Tufnell
Rosemary Hilary
James Wood-Collins
Steve Cullen
Leslie Hill
Bob Noyen
Tim Edwards
6
6/6
5/6
6/6
6/6
6/6
6/6
6/6
6/6
0/0
6
n/a
4/6
6/6
6/6
n/a
n/a
n/a
n/a
0/0
9
n/a
7/9
9/9
9/9
n/a
n/a
n/a
n/a
0/0
6
6/6
5/6
6/6
6/6
n/a
n/a
n/a
n/a
0/0
David Morrison was unable to attend the Audit and Risk Committee, Remuneration and Nomination Committee meetings held in May 2017,
the Board meeting held in June 2017 and the Audit and Risk Committee and Remuneration Committee meetings held in January 2018 due
to medical reasons.
The Board also met on 20 June 2017 to discuss the return of excess capital to shareholders and formally agreed a tender offer and share
repurchase, further details of which are provided in the Chairman’s statement.
The Non-executive Directors met without the Executive Directors on several occasions throughout the year, prior to scheduled meetings.
47
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information CORPORATE
GOVERNANCE REPORT CONTINUED
As in previous evaluations, the review of
the comments made during the evaluation
process identified no serious concerns over
the functioning of the Board, its members or
its Committees.
Individual appraisal of each Director’s
performance is undertaken by the Chief
Executive Officer and the Chairman. The
Senior Independent Director conducted
an appraisal of the performance of the
Chairman with input from the other Board
members. The outcome of these appraisals
in 2018 was positive and all roles were
considered to be undertaken effectively.
Board committees
The Board has established three Board
committees and delegated authority to each
committee to enable it to execute its duties
appropriately. The annual reports of the
three committees provide a statement of
each committee’s activities in the year:
• Nomination Committee – report set out
on pages 50 and 51;
• Audit and Risk Committee – report set
out on pages 52 to 55; and
• Remuneration Committee – report set
out on pages 56 to 70.
The committees operate on written terms
of reference, which are reviewed annually
and which are available on the Company’s
website or on request from the Company
Secretary at the registered office address.
The Chair of each Committee reports
regularly to the Board.
The work undertaken by the Audit and
Risk, Remuneration and Nomination
Committees was reviewed by the respective
Committee Chair to assess each committee’s
effectiveness during the year. The reviews
concluded that the committees were
operating in an effective manner and no
concerns were raised and these conclusions
were reported to the Board accordingly.
Operational Committees
The Board has also established three
committees responsible for operational
oversight and decision making as follows:
Executive Committee
The Executive Committee is the decision-
making body for all day to day operations as
delegated from the Board and Record plc’s
subsidiaries. The Committee comprises
the Chief Executive Officer as chair, the
three other Executive Directors, the Chief
Operating Officer, a Managing Director and
the Head of Human Resources.
In February 2018 the Board approved the
addition of the Head of Human Resources
to the Executive Committee membership,
acknowledging that staff retention and
development is key to the success of the
Group going forward and that therefore
Human Resources representation on the
Committee would be highly beneficial.
The appointment was subject to FCA
approval of the Head of Human Resources
performing a CF29 role. This approval was
granted on 26 March 2018 so the Head
of Human Resources did not attend any
meetings as a Committee member in the
year although he attended two meetings
as an observer and four other meetings to
present specific personnel-related issues.
The Committee meets formally once a
month and holds weekly operational update
meetings. Standing agenda review items for
formal meetings include clients and client
prospects, the management accounts,
departmental KPI data, compliance issues,
projects and resourcing. Operational policy
documents are regularly reviewed by the
Committee prior to formal approval by the
Board or the appropriate Board Committee.
The Head of Compliance and Risk is a
regular attendee of meetings (attending
ten out of twelve meetings in the year
under review).
Minutes of all meetings are circulated to the
Board for review and comment.
Board induction and training
New Directors appointed to the Board
receive advice as to the legal obligations
arising from the role of a director of a
UK-listed company as part of a tailored
induction programme. This training includes
briefings with the Chairman, Executive
Directors and Senior Management to help
new directors to familiarise themselves
with their duties and the Group’s culture
and values, strategy, business model,
businesses, operations, risks and
governance arrangements.
The Company Secretary, under the
direction of the Chairman, is responsible
for maintaining an adequate continuing
education programme, reminding the
Directors of their duties and obligations on
a regular basis, ensuring good information
flow between the Board, its committees and
management and assisting with Directors’
continuing professional development needs.
Board performance evaluation
The Board is required by the Code to
undertake an annual evaluation of its
performance. The Code states that
“evaluation of the board should consider the
balance of skills, experience, independence
and knowledge of the company on the
board, its diversity, including gender, how
the board works together as a unit, and
other factors relevant to its effectiveness”.
The Code recommends that evaluation of
the board of FTSE 350 companies should
be externally facilitated at least every
three years. The Board agreed that an
external evaluation of performance was not
necessary at the current time and delegated
responsibility for the review to Jane Tufnell,
Chair of the Nomination Committee.
Jane held individual meetings with all the
Board members to canvas opinions. The
comments made during these meetings
were recorded and a report produced which
documented the observations made and
assessed the activities and achievements
of the Board and its committees during
the period under review. Members were
also invited to separately approach the
Chairman or Company Secretary with any
individual concerns or comments they had.
No concerns were raised directly to the
Chairman or the Company Secretary.
48
Record plc Annual Report 2018Governance Investment Committee
The Board has delegated the responsibility
for authorising changes to existing
investment processes and for approving
new investment strategies to the Investment
Committee. The Committee consists of
the Chief Investment Officer, the Chief
Executive Officer, the Head of Client
Team, the Group Chairman, the Head of
Portfolio Management, and the Head of
Investment Strategy. The Committee meets
as necessary responding both to internal
developments and external events. Reports
on the activities of the Committee are
presented at each formal Board meeting
for review and comment.
Risk Management Committee
The Audit and Risk Committee has
delegated to the Risk Management
Committee the task of overseeing and
mitigating risks arising across the activities
of Record Currency Management Limited,
the regulated entity within the Group. The
Chief Operating Officer, the Chief Financial
Officer, the Head of Operations, the Head of
Portfolio Management, the Head of Portfolio
Implementation, the Head of Trading, the
Head of Compliance and Risk and the
Head of Front Office Risk Management
are all members of the Committee. The
Committee meets at least once a month
and as necessary in response to individual
or specific events requiring review. The
minutes of meetings are circulated to the
Audit and Risk Committee and a report on
the Risk Management Committee’s activities
is presented by the Chief Operating Officer,
as the Committee Chair, at each Audit and
Risk Committee meeting.
Operational Sub-Committees
The Investment Committee has further
delegated certain investment process
activities to the following sub-committees:
Investment Management Group
The Investment Committee has delegated
to the Investment Management Group
the authority to make certain decisions to
override systematic investment processes
and manage discretionary investment
processes. The Investment Management
Group consists of the Chief Investment
Officer, the Head of Portfolio Management
and the Head of Investment Strategy.
The Group meets as necessary and minutes
are circulated to the Portfolio Management
Group, the Investment Committee and
the Risk Management Committee once
approved and are available for inspection
by the Board and Executive Committee.
Portfolio Management Group
The Investment Committee has delegated
to the Portfolio Management Group the
authority to plan and implement process
overrides as instructed by the Investment
Management Group. The Portfolio
Management Group consists of the Chief
Operating Officer, the Head of Portfolio
Implementation, the Head of Trading, the
Head of Operations, the Head of Investment
Strategy and the Head of Reporting and is
chaired by the Head of Trading. The Group
meets as frequently as necessary to fulfil
its obligations and minutes are available
to the Investment Management Group,
the Risk Management Committee and
the Investment Committee, the Executive
Committee and the Board.
Internal control and
risk management
The Board has overall responsibility for the
Group’s systems of internal control and the
management of significant risks. The Board
sets appropriate policies on internal control
which are reviewed annually, and authority is
delegated to the following committees and
senior personnel to implement and apply
those policies:
• the Executive Committee;
• the Investment Committee;
• the Audit and Risk Committee; and
• the Risk Management Committee
The Board seeks ongoing assurance from
these Committees and Senior Management
about the effectiveness of the internal
controls, which include operational and
compliance controls, risk management
and the Group’s high-level internal control
arrangements. Such a system of internal
controls is designed to manage, rather than
eliminate, risk of failure to meet business
objectives and can only provide reasonable
and not absolute assurance against material
misstatements or loss.
Further information on the Group’s risk
management systems is provided on pages
32 to 38 of the Strategic report.
The Audit and Risk Committee has
undertaken a review of the effectiveness
of internal controls for the year ended
31 March 2018 and is satisfied that the
internal control environment is appropriate
(see ‘Internal controls and risk management’
on page 54).
Approved by the Board and signed on its
behalf by:
Joanne Manning
Company Secretary
14 June 2018
49
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information NOMINATION
COMMITTEE REPORT
• identifying and nominating for the
Board’s approval, candidates to fill Board
vacancies as and when they arise;
• reviewing annually the time commitment
required from non-executive Directors;
• preparing, and reviewing regularly, job
specifications for the Chairman and
Chief Executive officer, including the time
commitment expected;
• preparing, and reviewing regularly, a
policy on Board diversity, including
gender, and determining measurable
policy objectives as deemed appropriate;
• overseeing Significant Influence Function
competency reviews as required by the
FCA and conducted by the CEO and
Chairman on an annual basis;
• reviewing the re-appointment of any
Non-executive Director at the conclusion
of their specified term of office;
• recommending to the Board the
re-election by shareholders at the
Annual General Meeting (“AGM”) of the
Company of any Director under the
retirement by rotation provisions in the
Company’s Articles of Association; and
• reviewing the membership of the
Audit and Risk and Remuneration
Committees, in consultation with the
relevant Committee Chairman.
The full terms of reference of the Committee
comply with the UK Corporate Governance
Code (“the Code”) and are available on
the Group’s website or from the Company
Secretary at the registered office address.
Membership of the Committee
The Committee has been chaired by
Jane Tufnell since September 2016. Jane
is supported by the other independent
Directors; David Morrison, Rosemary Hilary
and Tim Edwards and the Group Chairman,
Neil Record. Tim Edwards was appointed
on 21 March 2018 and so did not attend any
Committee meetings in the year under review.
Committee meetings
The Committee met on six occasions
during the year ended 31 March 2018
and invited the Chief Executive Officer,
Company Secretary and the Head of
Human Resources to join the meetings
as the Committee considered appropriate.
Committee member meeting attendance
is detailed on page 47.
Jane Tufnell as Chair of the Nomination
Committee reported regularly to the Board
on the Committee’s activities, identifying
any matters where any action was deemed
to be required and recommendations as
considered appropriate.
Key Committee activities
Independent director search
The principal focus has been the selection
and appointment of a new independent
director to replace David Morrison who will
no longer be deemed to be independent
from 1 October 2018.
The appointment process started in early
2017 when the Committee worked with the
Head of Human Resources to prepare an
Independent Director Specification, detailing
the personal attributes required together
with a job description for the role.
The Committee delegated the responsibility
for managing the recruitment process to
Jane Tufnell and Neil Record. With the
Committee’s approval, Jane and Neil
appointed London-based executive search
firm Norman Broadbent in June 2017 to
assist in the selection process. Norman
Broadbent is a signatory to the Voluntary
Code of Conduct on Gender Diversity and
is independent of Record. A shortlist of 14
candidates was subsequently identified
and interviews held with four candidates
in August and September 2017.
This search identified Tim Edwards as the
preferred candidate to take forward in the
selection process.
During the selection process Tim met all the
Board members, the Head of Compliance
and Risk, the Chief Operating Officer,
the Head of Human Resources and the
Company Secretary and their feedback
was obtained prior to the Committee’s final
review of Tim’s suitability for the role.
Role of the Committee
The Nomination Committee is responsible
for reviewing the composition of the
Board, the Audit and Risk Committee,
the Remuneration Committee and the
Nomination Committee and making
recommendations to the Board as
necessary.
The Committee serves both Record plc and
the Group’s FCA regulated entity, Record
Currency Management Limited. The Boards
of the two companies are identical to
facilitate full regulatory oversight and
common corporate governance practices.
References to the “Board” refer to the
Boards of both Record plc and Record
Currency Management Limited.
Committee duties
Under its terms of reference the Committee
is tasked with the following:
• reviewing the structure, size and
composition of the Board and
making recommendations to the
Board as necessary with respect to
the role, capabilities and expected
time commitment required for each
appointment;
• giving full consideration to succession
planning for Directors and other senior
executives in the course of its work,
taking into account the challenges and
opportunities facing the Group and the
skills and expertise needed on the Board
in the future;
• keeping under review the leadership
needs of the Group, both executive and
non-executive, with a view to ensuring
the Group’s continued ability to compete
effectively in the marketplace;
50
Record plc Annual Report 2018Governance Looking forward
As well as considering its standing items
of business, the Committee will continue
to focus on succession planning. The
Committee will continue to consider the
required skillset for the Board and is keen
to consider the appointment of suitable
external candidates should they present
themselves.
Approved by the Committee and signed on
its behalf by:
Jane Tufnell
Chair of the Nomination Committee
14 June 2018
Committee evaluation
An internal review of Committee
effectiveness was overseen by the Chair of
the Committee in May 2018. The conclusion
was that the Committee had been effective
in carrying out its duties.
Annual General Meeting
Neil Record, Steve Cullen and Bob
Noyen are due to retire by rotation and
stand for re-election at the 2018 AGM.
The Committee (without Neil) met to review
the Directors standing for re-election, taking
into account their ongoing effectiveness
and commitment. The Committee agreed
that Neil, Steve and Bob continue to
make valuable contributions to the
Board’s deliberations and accordingly the
Committee has recommended the Board
approve a resolution in respect of their
re-election by shareholders.
Under the Company’s Articles of
Association when the Board of Directors
appoints a new Director, that Director
must stand for election at the next AGM.
Accordingly, Tim Edwards will retire and
stand for election as an independent
director at this year’s AGM. Under Listing
Rules the appointment of independent
directors must be approved by a simple
majority of all shareholders and by a simple
majority of the independent shareholders.
Further details are set out in the 2018
Notice of Annual General Meeting. The
Nomination Committee has reviewed the
election of Tim and has recommended the
Board approve a resolution in respect of his
election by shareholders.
The Chair of the Nomination Committee
will be available to answer any questions
relating to the Committee and its activities
at the AGM.
The Nomination Committee met in
November 2017 to review the suitability
of Tim and it was agreed that he has
the necessary skills and background for
an independent Director role at Record.
A formal recommendation to the Board
was made accordingly, proposing that
the Board offer the role of independent
Director to Tim. This recommendation was
unanimously approved by the Board subject
to FCA approval of Tim’s appointment as a
Director of Record Currency Management
Limited. Regulatory approval was granted
by the FCA on 21 March 2018 and Tim’s
appointment became effective on that date.
The Committee is satisfied with the
outcome of the Independent Director
selection process and is confident that
Tim will rise to the demands of challenging
the Board, ensuring the business meets
its objectives and helping it to maintain
its strong approach to governance and
client-focused culture.
Board diversity and membership
The Board Diversity Policy was last reviewed
by the Committee in November 2017. The
Committee agreed the policy remained
appropriate but that it should be enhanced
to include the objective that the minority
gender should represent at least one-third
of the Board.
The Committee believes that the
recent independent director search took
into account the benefits of diversity.
The Committee has also acknowledged
that future executive director succession
planning should embrace the benefits of
diversity, including gender diversity, to ensure
that any individual selected will add to the
Board’s mix of perspective, experience,
background and personal attributes.
The Committee is satisfied that the
current composition of the Board remains
appropriate and meets the gender target
set in the Board Diversity Policy. The
Committee is also content that the time
commitment required of independent
Directors is consistent with the nature
and size of the business.
51
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information AUDIT AND RISK
COMMITTEE REPORT
• approving the remuneration and terms
of engagement of the external auditor;
• reviewing and monitoring the
independence and objectivity of the
external auditor, and reviewing the
effectiveness of the audit process; and
• overseeing the provision of any non-audit
services by the external auditor.
The full terms of reference of the Committee
comply with the UK Corporate Governance
Code (“the Code”) and are available on
the Group’s website or from the Company
Secretary at the registered office address.
Membership of the Committee
The Committee has been chaired by
Rosemary Hilary since September 2016.
Rosemary is supported by the other
independent Directors: David Morrison,
Jane Tufnell and Tim Edwards. Tim Edwards
was appointed on 21 March 2018 and so
did not attend any Committee meetings in
the year under review.
Given her accounting and regulatory
background the Board considers that
Rosemary Hilary is the most appropriate
independent Director for the role of
Audit and Risk Committee Chair and this
view is supported by the other members
of the Committee.
The Board is satisfied that by virtue of
their previous experience gained in other
organisations, the Committee members
collectively have competence relevant to
the sector in which the Group operates.
The biographical details of the Committee
members are set out on pages 44 and 45.
The composition of the Committee
complies with the Code provision for smaller
companies requiring at least two independent
Non-executive Directors throughout the year.
However, Record has confirmed with the FCA
that it will have at least three independent
Non-executive Directors serving on the
Committee at all times.
Committee meetings
The Committee met six times during the
year ending 31 March 2018, being four
quarterly meetings plus two additional
meetings ahead of results announcements.
All meetings were also attended by the
Head of Compliance and Risk, the Chief
Financial Officer and the Chief Operating
Officer. Following an invitation from the
Committee Chair, the Chief Executive Officer
is now a regular attendee and he attended
five meetings during the year under review.
The internal audit partner was present at
all six meetings and the current external
audit partner attended three meetings.
Two further meetings have been held since
the year end. Committee member meeting
attendance is detailed on page 47.
The Committee also separately met the
Group’s external auditor and the internal
auditor after each meeting at which they
were present, providing an opportunity for
them to privately and in confidence raise
matters of concern. No significant issues
were raised in these meetings.
The Committee discharged its responsibilities
under the terms of reference by the
following actions:
• reviewing the form, content and
integrity of financial information prior
to release, including the Annual and
Interim Reports, and each of the Interim
Management Statements;
• reviewing the adequacy and
effectiveness of the Group’s internal
controls and risk management systems;
• considering the Risk Appetite statement,
ICAAP and Pillar 3 disclosures prior to
their recommendation for acceptance
by the Board;
• receiving and reviewing internal audit
reports and discussing their findings and
management’s responses;
• evaluating the performance of the internal
auditor during the engagement period;
• reviewing the independence of the
Group’s external auditor and the nature of
non-audit services supplied by the auditor;
• reviewing the external auditor’s audit
strategy and concluding report for the
2018 financial statements; and
• evaluating the performance of the
external auditor over the period.
Standing items on the agenda for Audit and
Risk Committee meetings included:
• regular reports by the Head of
Compliance and Risk reviewing internal
compliance and risk management
activities and issues which also
highlighted relevant UK and global
regulatory developments which will or
may impact the Group;
• review of a high level “Risk Heat Map” to
ensure that key risks and risk movements
are identified and addressed;
• a report from the Internal Auditor
highlighting progress made against
the agreed Internal Audit plan,
findings from the audits, and the
status of management’s responses
and actions to observations and
recommendations made;
Role of the Committee
The role of the Audit and Risk Committee
is to encourage and safeguard a high
standard of integrity in financial reporting,
risk management and internal control for the
Group, having regard to laws and regulations
applicable to the Group and the provisions of
the UK Corporate Governance Code.
The Committee serves both Record plc
and the Group’s FCA regulated entity,
Record Currency Management Limited.
The Boards of the two companies are
identical to facilitate full regulatory oversight
and common corporate governance
practices. References to the “Board” refer to
the Boards of both Record plc and Record
Currency Management Limited.
Committee duties
Under its terms of reference the Committee
is tasked with the following:
• monitoring the integrity of the Group’s
financial statements and any other
formal announcements relating to the
Group’s performance;
• overseeing whistleblowing arrangements
by which staff may raise concerns
about possible improprieties in financial
reporting or other matters;
• reviewing the Group’s internal control
and risk management procedures;
• reviewing the operational conflicts
of interest framework and making
recommendations to the Board and
Management as appropriate;
• reviewing the terms of reference for the
Risk Management Committee;
• monitoring and reviewing the effectiveness
of the Group’s internal audit function;
• making recommendations relating to
the appointment, re-appointment and
removal of the external auditor;
52
Record plc Annual Report 2018Governance • review of departmental KPI and KRI
data to ensure operational risks are
identified and appropriately addressed
by Management; and
• review of Risk Management Committee
meeting minutes with a summary activity
report by the Chief Operating Officer as
Chair of the Risk Management Committee.
During the year the Chair of the Committee
separately met the key people involved
in the Company’s governance, including
the Board Chairman, the Chief Executive
Officer, the Chief Financial Officer, the
Chief Operating Officer and the Head of
Compliance and Risk to obtain updates and
insights into business activities.
The Chair of the Committee reported
regularly to the Board on the Committee’s
activities, identifying any matters on which
the Committee considered that action was
required, and made recommendations on
the steps to be taken.
Key Committee activities
Cyber security
The Committee has continued to focus on
the cyber security risks to the business and
the need to ensure that the Group’s systems
and client data are properly safeguarded at
all times. Key reporting indicators on cyber
security have been provided in the monthly
Chief Executive’s KPI pack allowing the
Committee to monitor cyber security issues
and the actions being taken by Management
on an ongoing basis.
In October 2017 the Head of Systems
provided a detailed insight into the current
cyber security landscape, the threats faced
by the Group and the approach being taken
to defend its systems. The Committee
continues to be vigilant about this risk.
The Committee was also briefed on the
following cyber security initiatives being
implemented and was supportive of
these developments:
•
facilitating home and mobile working;
• monitoring and protecting
information assets;
• reviewing the content and frequency
of existing end user training and
the evaluation and implementation
of alternative training methods for
staff; and
• reviewing internal vulnerability
management.
The Committee further agreed that an
in-depth cyber security review should be
undertaken by a specialist external provider.
The scope for this review was agreed
as follows:
Compliance and risk
Under the standing agenda item of
Compliance and Risk the Committee
considered and confirmed they were
content with the following:
• to assess Record’s current cyber
security capability to protect the Group
against internal and external threats and
prevent unauthorised access to sensitive
information assets; and
• to provide an independent assessment
of Record’s current state maturity against
Deloitte’s Cyber Security Capability and
Maturity Model.
The fieldwork was started in May 2018
and the final report will be presented to the
Committee in July 2018.
MiFID II
In preparation for the implementation of
MiFID II in January 2018, work started in
2016 with a gap analysis exercise and
an action plan to address the issues
identified was formulated by Management
in early 2017.
Over the course of 2017 regular updates
were provided to the Committee by the
Chief Operating Officer and Head of
Compliance and Risk who were the project
leads on the MiFID II implementation
project. The Committee monitored progress
and discussed any issues arising.
The MiFID II project came to fruition on
3 January 2018 and, whilst Management
is vigilant for aspects that may need further
embedding, no material issues have arisen
either at implementation or since.
GDPR
During 2017 the Head of Compliance and
Risk provided regular updates on the work
being undertaken by the Group to prepare
for the introduction of the EU General Data
Protection Regulation (“GDPR”) which came
into force in May 2018.
In early 2018 the Committee reviewed the
Group’s preparations for the introduction of
GDPR, noting that a gap analysis had been
completed, Department Heads were briefed
on the actions required and monitoring had
been put in place to ensure compliance by
the implementation deadline.
As at the GDPR implementation date of
25 May 2018 the Group was compliant
with the requirements of the legislation.
• The compliance monitoring plan for
2018, noting that the plan was risk
based, proportionate and appropriate for
the nature and scale of the business.
• A Financial Crime Risk Assessment
prepared by the Head of Compliance
and Risk based on the FCA guidance
“Financial Crime: a Guide for Firms”
published in July 2016 and concluding
that the Group continues to have
proportionate and adequate procedures
and controls concerning the specific risk
posed by financial crime on its operations.
• A revised whistleblowing policy, updated
to reflect the provisions of the Criminal
Finances Act 2017.
• Conduct risk reviews, conducted by
the Head of Compliance and Risk on a
six-monthly basis and considered by the
Executive Committee.
Financial reporting
The Committee has reviewed the half-year
and annual results and the Annual Report,
before recommending them to the Board
for approval.
During the interim report process
Management reviewed the basis of
preparation of the Group’s consolidated
accounts and implemented two changes,
which had a material impact on the
presentation of the primary statements.
The first change related to the classification
of the external investment in the Group’s
seed funds (formerly classified as
non-controlling interest) and the second
change to the presentation of other
income. The changes do not impact the
profit attributable to owners of the parent,
earnings per share or equity attributable to
owners of the parent, as previously reported.
The Committee considered these
adjustments in detail, accepted they were
appropriate and agreed they were content
with the revised presentation and the restated
numbers as set out in the Interim Report.
53
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information AUDIT AND RISK
COMMITTEE REPORT CONTINUED
Key committee activities continued
Financial reporting continued
During the year, the Committee also
considered the significant financial and
regulatory reporting issues and judgements
made in connection with the financial
statements and the appropriateness
of accounting policies. In particular the
Committee considered Management
reports providing an assessment of the
internal controls environment and going
concern. The Committee is satisfied that
all judgements made by Management
which affect financial reporting have been
made in accordance with the Group’s
accounting policies.
The Committee further considered reports
from the external auditor, in particular
its report on the forementioned change
in presentation of the accounts and
the change in revenue recognition, and
additionally the independent assessment
of financial reporting and key controls, the
audit opinion on the Annual Report and the
independent report on the half-year results.
The Committee is satisfied that the financial
reporting control framework, including the
operation of a Group-wide general ledger,
consolidation system and preventative and
detective controls, operated effectively after
considering reports from both management
and from PricewaterhouseCoopers LLP
(“PwC”), as external auditor.
The Committee has reviewed the narrative
statements in the report and accounts to
ensure they were reasonable and consistent
with the reported results, and also the
auditor’s findings report which identified
no significant issues.
The Committee was satisfied with the
content of the Annual Report and confirmed
there were no significant issues or concerns
to be addressed. Therefore it unanimously
recommended that the Annual Report be
approved by the Board.
Internal controls and risk management
A significant part of the work of the
Committee is in providing oversight and
independent challenge to the internal
controls and risk management systems
of the Group. Management owns and
maintains a high-level “Risk Heat Map”
which identifies key risk areas that may
impact the Group. This analysis is used by
the Committee and compared against a risk
assessment prepared by the internal auditor
to ensure that material risk areas are being
appropriately identified and addressed by
Management and that movements in risks
and business impact are identified promptly
so that appropriate action can be taken.
The Committee reviews all minutes of Risk
Management Committee meetings and the
Chief Operating Officer as Chair of the Risk
Management Committee was present at all
meetings to answer questions raised.
The Committee has reviewed and
evaluated the system of internal controls
and risk management operated within the
Group, and is satisfied that the internal
control environment is appropriate.
Detailed information on the Group’s risk
management process is given in the
Strategic report on 32 to 38.
Internal audit
The internal audit function undertakes a
programme of reviews as approved by the
Committee, reporting the results together
with its advice and recommendations to
the Committee. The function is provided
by Deloitte LLP (“Deloitte”) under an
outsourcing contract which commenced
in May 2010. The objectives and
responsibilities of internal audit are set out
in a charter first approved by the Committee
in July 2012. An updated charter was
reviewed and approved by the Committee
in May 2018. Deloitte reports directly to the
Committee and the relationship is subject to
periodic review.
The Committee and the internal auditor
have developed a planning process to
ensure that the audit work performed
focuses on significant risks. The plans
include a number of cyclical reviews of key
operational functions (Trading, Portfolio
Implementation, Operations, IT systems
and Compliance) together with thematic
reviews and ongoing internal audit activities
including reporting to the Committee. This
ensures that, whilst there is focus on areas
deemed to be higher risk, broader coverage
across the whole business is achieved over
the full cycle. Each review is scoped at the
start of the audit to ensure an appropriate
focus reflecting business activities, the
market environment and regulatory matters.
The annual plans are periodically reviewed
to ensure they are adapted as necessary to
capture changes in the Group’s risk profile.
The Committee has received regular reports
on the programme of reviews and internal
audit findings at each of its meetings during
the course of the year, has reviewed the
findings and recommendations made by
the internal auditor and has ensured that
any issues arising are suitably addressed
by Management in an effective and
timely manner.
The Committee has reviewed Deloitte’s
work and discussed the delivery of internal
audit with Management and is satisfied
with the internal audit work conducted and
the coverage and standard of the reports
produced. The Committee is content that
sufficient and appropriate resources are
dedicated to the internal audit function and
this has been reported to and noted by
the Board.
External audit
Following an external audit tender process
conducted in early 2017, detailed in the
previous Annual Report, the Committee
and Board’s recommendation to appoint
PwC was approved by shareholders at the
2017 AGM.
Following PwC’s appointment the
Committee agreed the external auditor’s
fees and reviewed and agreed the terms
of the audit engagement letter.
54
Record plc Annual Report 2018Governance The Committee has reviewed reports
from the external auditor on the audit plan
(including the proposed materiality level for
the performance of the annual audit), the
status of its audit work and issues arising.
Particular focus was given to its testing of
internal controls, its work on the key audit
matters and possible audit adjustments.
In particular the Committee considered the
auditor’s comments in respect of the process
for determining revenue, which involves a
manual calculation of fees, noting the level
of testing performed on the effectiveness
of key controls, procedures for identifying
and valuing AUME and the contractual
terms associated with individual mandates.
The Committee discussed the findings and
was satisfied with the conclusion reached
by the auditor that no further audit testing
was required and no evidence of material
misstatements was identified.
The Committee has confirmed that no
material items remained unadjusted in the
financial statements.
Each year, following the annual audit, the
Committee evaluates the performance of
the external auditor. In May 2018 the Audit
and Risk Committee members liaised with
senior management within the Finance Team
to review the audit process. There were no
significant adverse findings from the 2018
evaluation and the Committee concluded
that PwC had provided an external audit
service which was appropriate for the Group
given its size and structure.
External auditor independence
Policy on provision of non-audit services
by the external auditor
The Committee operates a policy covering
the provision of non-audit services by the
external auditor to ensure that the ongoing
independence and objectivity of the
external auditor is not compromised. The
policy ensures adherence to the Financial
Reporting Council’s revised Ethical Standard
issued on 17 June 2016, which implements
new EU audit regulations restricting the
supply of non-audit services to Public
Interest Entities (“PIEs”) by statutory auditors,
and which applies to audits for financial years
beginning on or after that date.
The policy restricts the nature and value
of non-audit services that can be provided
by the external auditor by documenting
a “black list” of prohibited services,
setting a cap on the level of permitted
non-audit services and establishing the
requirement that permitted services above
a pre-determined limit should be approved
by the Committee before the assignment
is undertaken.
Under the Ethical Standard the aggregate
of fees for all non-audit services, excluding
audit related assurance services required
under regulation, may not exceed 70% of the
average of the audit fees for the preceding
three year period. The Committee considers
it best practice to adhere to the fee cap
on an annual basis, effective from the first
year of application for Record of the Ethical
Standard (i.e. the year ended 31 March 2018)
and monitors fees accordingly.
The policy is reviewed by the Committee on
an annual basis. This review was conducted
in May 2018 and it was agreed the policy
remained appropriate and it was approved
by the Committee accordingly.
Non-audit services undertaken by the
external auditor
The following permitted non-audit services,
pre-approved by the Committee and within
a pre-determined cost limit, have been
undertaken by PwC in the year under review:
Assessment of external
auditor independence
The Committee was satisfied that the
quantity and type of non-audit work
undertaken during the year did not impair
PwC’s independence or objectivity and that
their appointment for these assignments
was in the best interests of the Group and
its shareholders.
The Committee is satisfied that the external
auditor has maintained its independence and
objectivity over the period of its engagement.
Committee evaluation
An internal review of Committee
effectiveness was overseen by the
Company Secretary in May 2018. The
review was based on input from Board
members, Senior Management, the internal
audit partner and the external audit partner.
The conclusion was that the Committee
was effective in carrying out its duties.
Annual General Meeting
The Chair of the Audit and Risk Committee
will be available to answer any questions
relating to the Committee and its activities
at the Annual General Meeting.
Looking forward
As well as considering the standing items
of business, the Committee will focus on
the following areas during the year ahead:
• provision of other assurance services in
respect of controls reports;
• cyber security;
• risk monitoring;
•
independent auditor report to the FCA
on compliance with client asset rules;
• the regulatory landscape; and
• succession planning.
• the interim review work performed on the
half-year accounts; and
• advice and assistance on employee
work visas and applications.
Details of the total fees paid to PwC are set
out in note 4 to the accounts. Non-audit
fees, excluding audit related assurance
services required under regulation, were
equivalent to 48% (2017: 46%) of audit fees
and were therefore within the permitted cap
of 70%. No fees were paid to the outgoing
external auditor, Grant Thornton UK LLP, in
respect of the year under review.
Approved by the Committee and signed
on its behalf by:
Rosemary Hilary
Chair of the Audit and Risk Committee
14 June 2018
55
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information REMUNERATION REPORT
Chairman’s summary statement
Our remuneration policy is designed to act in the interests of
all our key stakeholders: our clients, shareholders, employees
and regulators.
Remuneration philosophy
The alignment of the motivation of our
colleagues with our incentive structure is
paramount to the long term success of
the company. Our remuneration policies
are designed to act in the interests of all
of our stakeholders and to continue to link
reward with performance in a transparent
and straightforward way. Remuneration
is an important component of our
succession planning and is an area on
which the Committee is focused. Identifying,
developing and appropriately compensating
those who will be the successors to our
existing senior management team is critical
and the Committee is concerned to ensure
that our remuneration structure and policies
work at all levels.
Company performance and
Directors’ remuneration
The year to March 2018 has seen growth in
our revenue, AUME and an increase in client
numbers. As a result of investing in our
people and resources to maintain innovation
and service enhancement, our costs have
risen, leading to a decline in profits during
the period. Our Group Profit Share Scheme
pool is 30% of operating profits, directly
linking the Company’s financial performance
to the size of the variable remuneration
pool, so the value delivered under the
Group Profit Share Scheme fell by 6%
in consequence.
A 3% Company-wide salary increase was
implemented in April 2018. Our Chief
Financial Officer was included in this year’s
award, due to his salary being below
market levels but no salary increases were
made for other Executive Directors within
the financial year.
Executive Directors were awarded
profit share units by the Remuneration
Committee based on their individual
level of performance. The Committee
used its discretion in setting the awards
after receiving input from the Head of
Compliance and Risk, who reports any
legal or compliance issues that relate to
Directors who are due to receive awards
under the Scheme. Payments were made
in accordance with the Group Profit Share
Scheme rules and were approved by
the Committee.
Share options were granted to each of the
Directors in accordance with the Share
Scheme rules. The Committee used its
discretion in determining the number of
options granted, considering the role
and performance of each individual
Director. The purpose of these awards is
to align Directors’ interests with those of
our shareholders and to reward growth
of the business over a period of years.
We continue to see the award of share
options, with appropriate performance
conditions, as the best way to achieve this.
Implementation of
Remuneration Policy changes
The changes that were approved to
the Group Profit Share Scheme have
been implemented this year. The legacy
arrangement of a Group Profit Share Pool
operating at 27% of operating profits
distributed between all staff and a Matching
Pool operating at 3% of operating profits
distributed between staff electing to receive
part of their Group Profit Share in the form
of shares has been replaced by a single
Group Profit Share Pool of 30% of operating
profits distributed between all staff. These
changes have been made to ensure that
the Scheme is simple to understand for
both employees and shareholders and
provides an incentive structure suitable for
all staff. No changes have been made to
the structure of Group Profit Share Scheme
payments for Directors.
Remuneration Committee
Chairman’s summary statement
Introduction
This has been my first full year as
Chairman of the Remuneration Committee,
during which we have implemented the
Directors’ remuneration policy approved
by shareholders at the last AGM, which
included certain changes (detailed in my
statement in the 2017 Annual Report)
to the policy it replaced. The Committee
continues to review the policy for Directors,
whilst also considering remuneration
policies and structures for staff below
Director level. The Company will next be
required to put a Directors’ remuneration
policy to shareholders at the 2020 AGM,
or earlier if changes to the policy should
be required before then.
56
Record plc Annual Report 2018Governance Committee membership
The Remuneration Committee is comprised
of the Non-executive Directors, namely Jane
Tufnell, Rosemary Hilary, Tim Edwards and
myself, acting as Chairman. Tim Edwards
joined the Committee from March 2018,
following his appointment as Non-executive
Director.
Shareholder consultation
It remains our policy to discuss any
substantive proposed changes to the
Group’s remuneration structures with key
external shareholders in advance of any
implementation.
An advisory vote to approve the
Remuneration Committee Chairman’s
summary statement and the Annual
report on remuneration will be held at
the 2018 AGM.
David Morrison
Remuneration Committee Chairman
14 June 2018
The new GPS contains a rule that no
profit share units will be granted after the
tenth anniversary of the later of the date
on which the GPS was adopted by the
Company (17 November 2017) or the
date it was amended by the Company’s
shareholders (being the date of the 2018
AGM). The Record Share Scheme (the
“Share Scheme”) rules were adopted
by the Company on 1 August 2008
and contain a similar rule imposing a
ten year limit on the life of the scheme.
The Committee proposes to change this
rule such that it refers to the date that the
scheme was amended by shareholders
(being the date of the 2018 AGM), aligning
the period during which the GPS and the
Share Scheme will operate.
Directors’ remuneration report
This year’s report is split into two sections:
• the Directors’ remuneration policy in full
(for reference purposes); and
• the Annual report on remuneration.
The current Directors’ remuneration policy
was approved by shareholders at last year’s
AGM. The policy begins with an overview,
followed by the Executive Director and
Non-executive Director remuneration policy
tables and an outline of the remuneration
structures which are currently in place. The
annual report on remuneration explains how
the policy has been implemented this year.
Approved share options were granted to
a range of senior and junior staff below
Director level for both incentive and
retention purposes using the flexibility
that we have now included in the Share
Scheme. This meant aligning performance
conditions for our Approved and
Unapproved options. We continue to use
the full allocation each year of granting
options over shares to the value of 2% of
the market capitalisation of Record plc to
Directors and staff, in accordance with our
policy and consistent with our philosophy
of aligning long-term business growth with
equity ownership.
Regulation
We continue to review our remuneration
structures in line with regulatory changes
and good practice. This year we have
updated the FCA policy statement and
made changes to meet the remuneration
requirements of MiFID II, as well as ensuring
that our pension scheme meets the auto
enrolment contribution levels.
Proposed amendments to the rules of the
Record Group Profit Share Scheme and
the Record Share Scheme
Having had shareholder approval for our
remuneration policy last year, we do not
intend to make any changes at this point.
The policy permits Executive Directors to
participate in the Group Profit Share Scheme
(the “GPS”) as was the case under the GPS
which was in operation on the date the
policy was approved by shareholders. No
new awards could be made under the GPS
after November 2017, as the rules included,
in line with good practice, a rule limiting the
life of the GPS to ten years. The new GPS
was therefore adopted in November 2017
by the Company’s remuneration committee
(on identical terms to the previous GPS)
in order that awards could be made to
employees in April 2018. As Executive
Directors cannot participate in the new GPS
without shareholder approval, the policy is
currently wider in this respect than the rules
of the new GPS. These will be aligned if
shareholder approval is forthcoming at the
2018 AGM to amend the new GPS to permit
participation by Directors.
57
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information REMUNERATION REPORT CONTINUED
Directors’ remuneration policy
Policy overview
The remuneration structure for the Executive
Directors is designed to incentivise
the delivery of sustained performance
consistent with the Group’s strategic goals
and appropriate risk management, and to
reward success in doing so. Changes to our
remuneration policy that were implemented
last year were designed to incentivise and
engage our high potential senior managers
and staff.
Our remuneration structures are similar for
all staff and Executive Directors, providing
a base salary, participation in the Group
Profit Share Scheme and participation by
invitation to the Group Share Scheme.
For Executive Directors, a higher proportion
of the total annual remuneration will be in
the form of variable compensation, directly
linked to the profitability of the Group.
The table below sets out the key
components of the remuneration policy for
employees and the policy that applies to
Executive Directors. The key elements of
the remuneration policy for Non-executive
Directors are set out separately.
Remuneration of Executive Directors
is determined within the limits of the
Company’s Articles of Association whilst
remuneration of the Non-executive Directors
is determined by the Chairman.
Remuneration Policy table for employees and Executive Directors
Current operation for employees
Application to Executive Directors
Salaries are paid monthly through the payroll and
reviewed annually by management.
The Remuneration Committee reviews salaries for
Executive Directors on an annual basis.
Any review will take into account market rates,
business performance and individual contribution.
Element, purpose
and link to strategy
Base salary
To pay a salary that reflects
the role, responsibilities,
experience and knowledge
of the individual, ensuring
that the salary paid is
competitive with other
employers in our industry.
There is no prescribed maximum salary. However,
increases are normally expected to be in line with the
typical level of increase awarded across the Group,
except under certain circumstances such as:
• a new Executive Director being appointed at
lower than typical market salary to allow for
growth in the role;
•
larger increases in salary may be awarded
to position salary closer to market levels as
experience increases;
• higher increases may be awarded to reflect an
increase in responsibilities or promotion; and
• where there has been a significant change in
market practice.
Executive Directors receive benefits on the same
basis as all other employees.
There is no maximum level of benefit.
Executive Directors receive an employer pension
contribution of 15.5% of salary which can be
paid into the Group Personal Pension Scheme.
Executive Directors can choose to make a personal
contribution in addition to the Company contribution.
If Executive Directors have elected not to make
contributions into the Group Personal Pension
Scheme then they will be paid a cash amount
equivalent to their employer pension contribution
through the payroll, with the appropriate tax and
national insurance deductions.
Benefits
To provide a benefits
package that provides for the
wellbeing of our colleagues.
A range of benefits are offered including, but not
limited to private medical insurance, dental insurance,
permanent health insurance, life assurance, personal
accident insurance and annual holiday.
Pension
To provide an appropriate
retirement income.
There is the option to exchange medical insurance
for the cash equivalent.
Benefit schemes are reviewed on an annual basis
to ensure that the costs and service of the schemes
are appropriate.
All staff are entitled to join the Group Personal
Pension Scheme. This is a defined contribution plan
to which the Group makes employer contributions
and staff can choose to make additional personal
contributions. There are differing levels of
employer contribution.
Base salary is the only pensionable element
of remuneration.
58
Record plc Annual Report 2018Governance Current operation for employees
Application to Executive Directors
The Group Profit Share Scheme is based on pre-tax
profitability of the business for the financial year and
is paid semi-annually.
Executive Directors are eligible to participate
in the Group Profit Share Scheme, together with
all employees.
Element, purpose
and link to strategy
Group Profit Share
To reward individual and
collective performance,
aid retention and to align
interests with those of
our shareholders.
Share Scheme
To incentivise long-term
performance, aid long-term
retention and to align
interests with those of
our shareholders.
The Remuneration Committee sets the quantum of
the Scheme with the intention of maintaining this at
an average of 30% of operating profits.
The profit share scheme range is capped at 25%
to 35% of operating profits with the intention of this
being an average of 30%.
The allocation of the Profit Share pool is determined
by the Remuneration Committee and management
and is based on the role and performance of
the individual.
Senior Managers are required to take one third of
their payment in shares subject to lock up conditions
of one to three years and in addition are offered the
opportunity for up to a further third of the Profit Share
to be paid in shares. The remaining amount is in cash.
Staff members can take their profit share in cash
or elect for up to a third in shares.
The Share Scheme allows the Remuneration
Committee to grant options over up to 2% of
the market capitalisation of Record plc (being
approximately 4 million shares) per annum. Of this
total, 1% (approximately 2 million shares) can be
granted to Executive Directors and the other 1% can
be granted to staff.
Approved and Unapproved Options can be granted
under the Share Scheme at various exercise prices
and conditions.
Approved options are limited to a maximum grant
value of £30,000.
All staff members are eligible to participate in the
Share Scheme.
Share Incentive Plan
To incentivise long-term
performance, aid long-term
retention and to align
interests with those of
our shareholders.
The Group has an approved Share Incentive Plan
(“SIP”). All staff are able to buy shares from pre-tax
salary up to an HMRC-approved limit (£1,800 for
the financial year ended 31 March 2018), which is
matched at a rate of 50%.
The Remuneration Committee approves all payments
to Executive Directors.
Executive Directors are required to take one third of
their payment in shares subject to lock up conditions
of one to three years. In addition they are offered
the opportunity for up to a further third of their Profit
Share to be paid in shares. The remaining amount
will be paid in cash.
Clawback provisions are in place in the
event of adverse restatement of accounts or
material misconduct, at the discretion of the
Remuneration Committee.
Whilst the profit share pool is capped based on
the profitability of the Group and range stated
above, there is no individual maximum entitlement
set within this limit.
Key features of the scheme may be amended
to the advantage of Executive Directors only with
prior shareholder consent.
Executive Directors are eligible to participate in the
Share Scheme.
The Remuneration Committee limits the value of
shares over which an option is granted to any
Director in any year to a maximum of 200% of that
Director’s salary for that year.
All share options awarded to Executive Directors
are granted with an exercise price equal to the
market value of the shares on the date of grant and
are subject to a performance condition based on
Record’s cumulative annual EPS growth with vesting
proportions directly related to this growth.
Clawback provisions are in place for all options
should there be any restatement of accounts
or breach of contract, at the discretion of the
Remuneration Committee.
Key features of the scheme may be amended to
the advantage of Executive Directors only with prior
shareholder consent.
Executive Directors may participate in the SIP on the
same basis as other employees.
59
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information REMUNERATION REPORT CONTINUED
Directors’ remuneration policy continued
Remuneration Policy table for the Chairman and Non-executive Directors
The table below sets out the remuneration policy for the Chairman and Non-executive Directors.
Element, purpose
and link to strategy
Operation, performance measures,
deferral and claw back
Further information
Salary/fees
To pay a salary / fee
that reflects the role,
responsibilities, time,
experience and knowledge
of the individual, ensuring
that the salary / fee paid
is competitive with other
employers in our industry.
Salaries and fees are reviewed annually. Any review
will take into account market rates, business
performance and individual contribution. Whilst there
is no prescribed maximum salary / fee, increases
are expected to be in line with the typical level of
increase awarded across the Group.
The Chairman’s salary is recommended by the
Remuneration Committee and approved by
the Board. The Chairman does not participate
either in the Group Profit Share Scheme or in the
Share Scheme.
The Non-executive Directors’ fees are approved
by the Chairman and they do not participate
either in the Group Profit Share Scheme or in the
Share Scheme.
The Chairman’s salary and the Non-executive
Directors’ fees are reviewed annually.
The Non-executive Directors’ fees have been
reviewed this year and received the Company-wide
3% increase.
Benefits
To provide a benefit package
that provides for the wellbeing
of our colleagues.
The Chairman receives a range of benefits including,
but not limited to, private medical insurance,
permanent health insurance, life assurance, personal
accident insurance and annual holiday.
The Non-executive Directors do not receive any
additional benefits although the Board may introduce
additional benefits if it is considered appropriate
to do so.
Pension
To provide an appropriate
retirement income.
The Chairman is entitled to join the Group Personal
Pension Scheme. The Chairman has chosen to opt
out of the Group Personal Pension Scheme and in
line with the policy for Executive Directors receives
the employer pension contribution of 15.5% of his
salary as taxable income.
The Company reimburses the Chairman and
Non-executive Directors for reasonable expenses
in performing their duties.
The Non-executive Directors do not receive
pension benefits.
Other elements
of remuneration
The Chairman and the Non-executive Directors do
not participate in the Group Profit Share Scheme,
Share Scheme, or the SIP Scheme.
None.
Group Profit Share Scheme
Record operates a Group Profit Share
Scheme (the “Scheme”), which allocates
a profit share pool to be distributed
between all employees of the Group. The
Remuneration Committee has the discretion
to vary the quantum of the Scheme
between 25% and 35% of operating profits,
and the intention is to maintain an average
level of 30% of operating profits over the
medium term.
The continuation of the Scheme remaining
at 30% of operating profits has created a
transparent and predictable link between
variable compensation and profitability, and
has aligned the interests of employees with
those of our shareholders.
Further to shareholder approval last year,
the changes to the Group Profit Share
Scheme have been implemented this
year. Following shareholder approval last
year, the changes that were approved
to the Group Profit Share Scheme have
been implemented this year. The legacy
arrangement of a Group Profit Share Pool
operating at 27% of operating profits
distributed between all staff and a Matching
Pool operating at 3% of operating profits
distributed between staff electing to receive
part of their Group Profit Share in the form
of shares has been replaced by a single
Group Profit Share Pool of 30% of operating
profits distributed between all staff. The
Scheme is payable through a combination
of profit share payments in cash and
share-based payments. The allocation of
the profit share pool for Executive Directors
is determined by the Remuneration
Committee and for all other employees is
delegated to management. The Scheme is
discretionary and employees do not have
a contractual right to receive awards. In
addition, all payments made to Executive
Directors and other Code Staff (those in
Significant Influence Functions) are subject
to Remuneration Committee approval
and no payments are made automatically.
Payments are awarded after input from the
Head of Compliance and Risk, who reports
any legal or compliance issues that relate to
individuals who are due to receive awards
under the Scheme. Any issues would also
be monitored through compliance and risk
reports at Audit and Risk Committee and
Board meetings.
60
Record plc Annual Report 2018Governance To ensure that the interests of management
and shareholders are aligned, Directors,
Code staff and Senior Managers are
required to take a proportion (initially a
third) of their Profit Share in shares rather
than cash, subject to a three-year “lock
up” period. These shares are released from
“lock up” in three equal tranches on the
first, second and third anniversary of the
Profit Share payment date. Additionally,
Directors, Code Staff and Senior Managers
are offered the opportunity to elect for up
to a further third of their Profit Share to be
paid in shares, which has no lock up. The
remaining amount will be paid in cash.
The Record plc Share Scheme
It is of great importance for the long-term
success of the business that the Group
retains and motivates its current and
future key employees, and that they are
incentivised over the longer term in a manner
which aligns their interests with shareholders.
The Record plc Share Scheme (the “Share
Scheme”) has been designed to award
share options to Directors and employees
of Record. The Share Scheme allows the
Committee to grant HMRC approved options
(“Approved Options”) under Part 2 of the
Share Scheme alongside Part 1 which
allows for the grant of unapproved options
(“Unapproved Options”).
It is the intention of the Group to continue
to use the Share Scheme for Executive
Directors and staff. In total the size of
the Share Scheme will be limited to 2%
per annum of the market capitalisation of
Record plc (being approximately 4 million
shares). Of this total the Remuneration
Committee will continue to be able to award
up to 1% as options to Executive Directors
and up to 1% to staff.
Last year the Share Scheme for staff
below Executive Director level was
amended to introduce more flexibility to
the Scheme rules when granting options.
The Committee now has the flexibility to
allow Unapproved Option grants to be
granted with an exercise price equal to the
market value of the shares on the date of
grant, or at a discounted price or nil cost.
Performance conditions of both Approved
and Unapproved Option grants have also
been aligned. These changes have given
the Committee the flexibility to implement
a different mix of reward, retention and
alignment benefits and can be used
according to the environment and business
objectives. For example, in a period of share
price growth, market price options will be a
strong incentive and retention benefit.
Nil cost or discounted options have the
greatest immediate reward effect and
could be used to retain and motivate high
performing staff in the shorter term.
With this added flexibility, the Committee will
be responsible for approving the structure
of any option awards to Executive Directors
and staff.
Each participant may be granted Approved
Options over shares with a total market
value of up to £30,000 on the date of
grant. There is no such limit on the value
of Unapproved Options, which may be
granted with any exercise price (including
nil), although the Committee’s policy is for
Unapproved Options awarded to Executive
Directors to be granted with an exercise
price equal to the market value of the
shares on the date of grant.
The terms of options for Executive
Directors differ to those for all other staff.
For Executive Directors, the Remuneration
Committee will limit the value of shares over
which an option is granted to any Director
in any year to a maximum of 200% of that
Director’s salary for that year. All Executive
Director option awards will be subject to a
performance condition based on Record’s
annual cumulative EPS growth. One third
of the award will vest on each of the third,
fourth and fifth anniversaries of the date of
grant, subject to an EPS hurdle linked to the
annualised EPS growth for the respective
three, four and five year periods from date
of grant. Vesting is on a stepped basis, with
25% of each tranche vesting if EPS growth
over the relevant period is at least RPI plus
4% per annum, increasing through 50%
and 75% to 100% vesting if EPS growth
exceeds RPI plus 13% per annum over
the same period. Options under both the
Approved and Unapproved schemes will
be granted with an exercise price equal to
the market value of the shares on the date
of grant and the exercise price per share of
Approved Options must be no lower than
the market value of a share on the dealing
day immediately preceding the date of grant.
For staff below Executive Director, Approved
Options become exercisable on the fourth
anniversary of grant subject to the employee
remaining in employment with the Group
and, should they have been set, any other
performance conditions being met. One
quarter of any Unapproved Option becomes
exercisable each year for four years, subject
to the employee remaining in employment
and, should they have been set, any other
performance conditions being met.
The Remuneration Committee retains the
power to grant options under the Share
Scheme, and granted options to Board
Directors during the year, although it can
and has delegated to management the
task of identifying suitable recipients of
options and the number of shares to be
put under option for those below Board
level. Details of the option awards made
to Board Directors during the year can be
found on page 65 and all awards were
made in accordance with the Scheme
rules. Management used the full allocation
for granting options to staff below Board
Director this year and made Approved
awards in accordance with the Share
Scheme rules.
The Remuneration Committee retains the
ability to vary or waive existing performance
targets where, in its absolute discretion,
it considers the target has become unfair
or impractical or to take account of
exceptional circumstances.
Clawback provisions
The Group Profit Share Scheme rules
contain clawback provisions which allow for
the repayment of profit share payments in
the event of a material breach of contract,
material misconduct or a re-statement of
financial accounts which would have led to
a reduction in any prior Profit Share award.
Both Approved and Unapproved Options
granted under the Share Scheme for
Executive Directors are subject to
clawback provisions in addition to the
performance conditions set by the
Remuneration Committee.
Source and funding of shares
Share awards under the Group Profit
Share Scheme are covered wherever
possible through market purchases by the
Company’s Employee Benefit Trust (“EBT”)
rather than through the issue of new shares,
and this has been the case since the
inception of the Scheme in 2007. It remains
our intention to continue to operate in
this manner in order to minimise potential
dilution of shareholders’ interests.
Similarly, options under the Share Scheme
are not normally satisfied by the issue of
new shares, in order to minimise potential
dilution. The Company provides funds to
the EBT to allow it to purchase shares in the
market with which to satisfy the exercise of
options. The number of shares purchased
by the Group to hedge the award of
options is based on an appropriate hedge
ratio at each grant date, as calculated
by management and approved by the
Remuneration Committee.
61
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information Non-executive Directors are appointed for
an initial three-year period. Their continued
engagement is subject to the Company’s
Articles relating to the retirement of
Directors by rotation.
The terms and conditions of appointment of
the Executive Directors and Non-executive
Directors are available for inspection at the
Company’s registered office.
When an Executive Director leaves the
Group, the Remuneration Committee will
review the circumstances and apply the
appropriate treatment. Any payments that
are made will be in line with contractual
entitlements and statutory requirements
only. Where applicable the broad aim in
making termination payments is to avoid
rewarding poor performance.
Salary and benefits will continue to be paid
throughout the notice period although the
Committee has the discretion to make a
payment in lieu of notice.
The treatment of payments for the
Group Profit Share Scheme and the Share
Scheme will be in accordance with the
relevant scheme rules at the time the
Director leaves.
REMUNERATION REPORT CONTINUED
Directors’ remuneration policy continued
Accounting treatment
The Share Scheme is accounted for in
accordance with IFRS 2 – Share-based
Payments and is not part of the Group
Profit Share costs.
Share Incentive Plan
The Group operates an HMRC-approved
Share Incentive Plan (“SIP”) which is offered
to all staff, including Executive Directors,
who are able to buy shares from pre-tax
salary up to a defined HMRC limit (£1,800
worth of shares in the financial year ended
31 March 2018). To encourage employee
share ownership the Group matches any
shares purchased through this scheme at a
rate of 50%, although staff will only receive
the full benefit of the matched shares if
they remain with the Group for three years.
To qualify for full tax benefits, these shares
must be left in the SIP for five years.
How the views of shareholders
are taken into account
The Remuneration Committee takes into
account shareholder views received in
relation to resolutions to be considered
at the AGM each year. The Committee
values shareholder feedback when forming
remuneration policy and any material
changes proposed to Executive Directors’
remuneration will be discussed in advance
with major institutional shareholders.
Considering the views
of employees
When determining Executive Director
remuneration arrangements the Committee
takes into account pay conditions throughout
the Group to ensure that the structure and
quantum of Executive Directors’ pay remains
appropriate in this context. The Committee
seeks advice from the Head of Compliance
and Risk prior to approving or amending the
remuneration policy.
The Committee does not consider that
it is appropriate to consult directly with
colleagues when developing the Directors’
remuneration policy. However, the
Committee does actively seek feedback
from staff about the remuneration structures
that are in place. A significant proportion of
our colleagues are shareholders so are able
to express their views in the same way as
other shareholders.
Approach to remuneration for
new Executive Directors
On the recruitment of a new Executive
Director the level of fixed remuneration will
be appropriate to the candidate’s skills and
experience and the responsibility that they
will be undertaking. New Executive Directors
would be eligible to join the Group Profit
Share Scheme and would be eligible to be
considered for the Share Scheme as deemed
appropriate by the Remuneration Committee.
The Remuneration Committee recognises
that a new Executive Director may forfeit
remuneration as a result of leaving a
previous employer and the Committee
will consider mitigating that loss or
part of that loss by making an award in
addition to the remuneration outlined
above. The Committee will consider any
relevant factors including any performance
conditions attached to any previous
incentive arrangements and the likelihood
of these conditions being met and will
take reasonable steps to ensure that any
payment is at an appropriate level.
When recruiting a new Non-executive
Director, fees will be in line with the
prevailing fee schedule paid to other Board
members and Non-executive Directors at
that time.
Service contracts and loss
of office payment policy
All Executive Directors have service
agreements with effect from 15 November
2007, with the exception of James
Wood-Collins, who has a service agreement
dated 1 October 2010, reflecting his
promotion to Chief Executive Officer and
Steve Cullen who has a service agreement
dated 15 March 2013, reflecting his
promotion to Chief Financial Officer.
None of the service agreements is for a
fixed term and all include provisions for
termination on six months’ notice by either
party. Service agreements do not contain
any contractual entitlement to receive
bonuses, nor to participate in the Group
Profit Share Scheme or the Group Share
Scheme, nor to receive any fixed provision
for termination compensation.
62
Record plc Annual Report 2018Governance Details of service contracts for Directors standing for re-election at the forthcoming AGM are as follows:
Re-election
Neil Record
Steve Cullen
Bob Noyen
Contract date
Notice period
Expiry/review date
15 November 2007
15 March 2013
15 November 2007
Six months
Six months
Six months
Rolling
Rolling
Rolling
Remuneration illustrations
The charts below show the lowest, highest and average remuneration for the Executive Directors over the past three years. Fixed
remuneration is comprised of salary, pension contributions, other benefits and any cash alternative. Variable remuneration comprises Group
Profit Share, including cash and share payments, as well as any gains on share options. As variable remuneration is not capped at the
individual level, we have used the three-year average, highest and lowest remuneration as an indication of the Executive Director’s earnings
potential. Future remuneration will be determined based on profitability and performance as described in the Remuneration policy.
Fixed
Variable
James Wood-Collins
Bob Noyen
Minimum
100%
£331,141
Minimum
100%
£331,546
3 year
low
3 year
high
3 year
average
50%
47%
48%
50%
£642,865
53%
£697,887
52%
£678,782
3 year
low
3 year
high
3 year
average
51%
48%
50%
49%
£628,508
52%
£678,447
50%
£654,361
£
0
100k 200k 300k 400k 500k 600k
700k
800k
900k
1,000k
£
0
100k 200k 300k 400k 500k 600k
700k
800k
900k
1,000k
Leslie Hill
Steve Cullen
Minimum
100%
£332,137
Minimum
100%
£152,092
3 year
low
3 year
high
3 year
average
46%
40%
44%
54%
£680,985
60%
£818,973
56%
£740,866
3 year
low
3 year
high
3 year
average
63%
58%
59%
37%
£235,238
42%
£256,522
41%
£248,261
£
0
100k 200k 300k 400k 500k 600k
700k
800k
900k
1,000k
£
0
50k
100k
150k
200k
250k
300k
Compliance with the FCA Remuneration Code
The Committee regularly reviews its remuneration policies to ensure compliance with the principles of the Remuneration Code of the
UK financial services regulator, as applicable to the Group. The remuneration policy is designed to be consistent with the prudent
management of risk, and the sustained, long-term performance of the Group. The Chief Financial Officer and the Head of Compliance
and Risk are involved in reviewing the remuneration policy and practice to ensure that it is aligned with sound risk management, and keep
the Committee informed of the firm’s risk profile so that this can be taken into account in remuneration decisions.
63
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
REMUNERATION REPORT CONTINUED
Annual report on remuneration
Annual report on remuneration
This part of the report has been prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (as amended), and relevant sections of the Listing Rules. The annual report on remuneration
will be put to an advisory shareholder vote at the 2018 AGM. The information on pages 64 to 70 has been audited where required
under the regulations and is indicated as audited information where applicable.
Directors’ remuneration as a single figure (audited information)
The remuneration of the Directors for the year ended 31 March 2018 is detailed below together with their remuneration for the previous year.
Year ended 31 March 2018
Executive Directors
James Wood-Collins
Leslie Hill
Bob Noyen
Steve Cullen
Non-executive Directors
Neil Record
David Morrison
Jane Tufnell
Rosemary Hilary
Tim Edwards (appointed 21 March 2018)
Salaries
and fees
£
285,913
285,913
285,913
126,210
79,310
61,800
42,230
48,410
7,038
Gain on
share
options
£
Short-term
incentive
(GPS-cash)
£
Benefits1
£
Short-term
incentive
(GPS-shares)2
Pensions3
£
£
Total
£
912
1,908
1,317
1,946
2,137
240
—
—
—
39,872
216,388
108,194
44,316
695,595
—
—
—
—
—
—
—
—
163,563
226,939
44,316
722,639
216,388
108,194
44,316
656,128
36,101
50,089
20,892
235,238
—
—
—
—
—
—
—
—
—
—
12,293
—
—
—
—
93,740
62,040
42,230
48,410
7,038
Total
1,222,737
8,460
39,872
632,440
493,416
166,133
2,563,058
Year ended 31 March 2017
Executive Directors
James Wood-Collins
Leslie Hill
Bob Noyen
Steve Cullen
Non-executive Directors
Neil Record
David Morrison
Jane Tufnell
Rosemary Hilary (appointed 1 June 2016)
Salaries
and fees
£
280,361
280,361
280,361
123,760
77,770
51,100
41,410
39,637
Cees Schrauwers (resigned 22 September 2016) 39,500
Andrew Sykes (resigned 22 September 2016)
20,500
Gain on
share
options
£
Short-term
incentive
(GPS-cash)
£
Benefits4
£
Short-term
incentive
(GPS-shares)2
Pensions3
£
£
Total
£
863
1,705
1,256
2,609
1,935
—
—
—
—
—
19,833
235,583
117,791
43,456
697,887
—
—
—
—
—
—
—
—
—
117,787
375,664
43,456
818,973
235,583
117,791
43,456
678,447
25,998
82,710
21,445
256,522
—
—
—
—
—
—
—
—
—
—
—
—
12,054
—
—
—
—
—
91,759
51,100
41,410
39,637
39,500
20,500
Total
1,234,760
8,368
19,833
614,951
693,956
163,867
2,735,735
1. This value includes matching shares on SIP scheme, medical benefits, payments made in lieu of medical benefits, overtime payments and reimbursement of
taxable travel expenses.
2. There are no performance conditions attached to short-term incentives. The shares vest immediately but are subject to lock up restrictions and are calculated
based on the overall profitability of the Group.
3. This includes payments made in lieu of pension contributions.
4. This value includes matching shares on SIP scheme, payments made in lieu of medical benefits and overtime payments.
64
Record plc Annual Report 2018Governance
Payments made to former Directors
Andrew Sykes, a former Non-executive Director, received £4,000 for consultancy services in the year ended 31 March 2018.
No payments were made to Andrew Sykes or Cees Schrauwers for loss of office.
Allocation of the Profit Share pool to Executive Directors
The Remuneration Committee is able to exercise discretion over the level of Group Profit Share awarded to the Executive Directors. On
two occasions during the year, the Committee has approved awards to the Directors after considering the role and performance of each
individual Director and also reports from the Head of Compliance and Risk, regarding any legal or compliance issues relevant to the
award.
Pensions (audited information)
Executive Directors are entitled to join the Group Personal Pension Scheme. This is a defined contribution plan and for the financial year
ending 31 March 2018, the Group made contributions of at least 15.5% of each Director’s salary which could either be paid into the
Group Personal Pension Scheme, taken as cash or a combination of the two.
All Directors who make personal contributions into the Company pension scheme via salary sacrifice receive an amount equivalent to the
employer’s national insurance saved by the Company into their pension as an additional contribution.
The employer pension contributions for the financial years ending 31 March 2017 and 31 March 2018 are detailed in the table on page 64.
Directors’ share options and share awards (audited information)
During the financial year ended 31 March 2018 option awards were made to all of the Executive Directors in accordance with the
scheme rules.
All of the Executive Directors have previously been awarded share options and the table below sets out details of Executive Directors’
outstanding share option awards, which may vest in future years subject to continued service and performance conditions, as well as any
options that have lapsed or been exercised.
Total
options at
1 April 2017
Options
granted
in period
Options
lapsed
in period
Options
exercised
in period
Date of grant
Total
options at
31 March
2018
Exercise
price
Earliest
exercise
Latest
exercise
James
18/11/13
933,334
Wood-Collins
27/11/14
630,000
01/12/15
450,000
27/01/16
100,000
30/11/16
550,000
—
—
—
—
—
26/01/18
—
1,300,000
Leslie Hill
27/11/14
630,000
01/12/15
450,000
27/01/16
100,000
30/11/16
550,000
—
—
—
—
26/01/18
—
280,000
Bob Noyen
27/11/14
630,000
01/12/15
450,000
27/01/16
100,000
30/11/16
550,000
—
—
—
—
26/01/18
—
280,000
Steve Cullen
27/11/14
270,000
01/12/15
450,000
27/01/16
100,000
30/11/16
550,000
—
—
—
—
26/01/18
—
125,000
(233,334)
(233,333)
466,667
30.00p
18/11/17
17/11/19
(210,000)
—
—
—
—
(210,000)
—
—
—
—
(210,000)
—
—
—
—
(90,000)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
420,000
35.86p
27/11/17
26/11/20
450,000
28.875p
01/12/18
30/11/21
100,000
24.50p
27/01/19
26/01/22
550,000
34.0718p
30/11/19
29/11/22
1,300,000
43.50p
26/01/21
25/01/24
420,000
35.86p
27/11/17
26/11/20
450,000
28.875p
01/12/18
30/11/21
100,000
24.50p
27/01/19
26/01/22
550,000
34.0718p
30/11/19
29/11/22
280,000
420,000
43.50p
26/01/21
25/01/24
35.86p
27/11/17
26/11/20
450,000
28.875p
01/12/18
30/11/21
100,000
24.50p
27/01/19
26/01/22
550,000
34.0718p
30/11/19
29/11/22
280,000
180,000
43.50p
26/01/21
25/01/24
35.86p
27/11/17
26/11/20
450,000
28.875p
01/12/18
30/11/21
100,000
24.50p
27/01/19
26/01/22
550,000
34.0718p
30/11/19
29/11/22
125,000
43.50p
26/01/21
25/01/24
The outstanding share options above vest subject to performance conditions which are detailed on page 66.
The value of shares over which the award of options was made in the year to James Wood-Collins was £565,500, to Leslie Hill and
Bob Noyen was £121,800 and to Steve Cullen was £54,375 all based on the exercise prices of £0.4350 per share, which equated to
the market share price upon grant. None of the awards will vest if the lowest threshold level of performance is not exceeded.
65
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
REMUNERATION REPORT CONTINUED
Annual report on remuneration continued
Directors’ share options and share awards (audited information) continued
Vesting of awards made to Executive Directors is on a stepped basis and is linked to Record’s average annualised EPS growth over the
relevant period since grant as follows:
Record’s annualised EPS growth over the period from grant to vesting
Percentage of shares subject to the award which vest
>RPI growth + 13%
>RPI growth + 10%, =RPI growth + 7%, =RPI growth + 4%, = 3 months
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Corporation tax liabilities
Financial liabilities
Derivative financial liabilities
Total current liabilities
Total net assets
Equity
Issued share capital
Share premium account
Capital redemption reserve
Retained earnings
Total equity
Approved by the Board on 14 June 2018 and signed on its behalf by:
Note
10
11
12
13
14
15
16
16
17
17
18
15
19
2018
£’000
910
228
1,115
86
2,339
6,775
266
10,198
12,498
29,737
32,076
Restated
2017
£’000
881
245
—
102
1,228
6,972
53
18,102
19,120
44,247
45,475
(2,630)
(3,013)
(399)
(804)
(2,467)
(4,779)
(29)
(48)
(5,525)
(8,644)
26,551
36,831
50
2,237
26
24,238
26,551
55
1,971
20
34,785
36,831
Neil Record
Chairman
Steve Cullen
Chief Financial Officer
The notes on pages 85 to 115 are an integral part of these consolidated financial statements.
The comparative period has been restated. A reconciliation of the previously published statement of financial position to the restated statement
is provided in note 29.
79
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 March 2018
As at 1 April 2017
Profit and total comprehensive income for the year
Dividends paid
Share buy-back and cancellation
Own shares acquired by EBT
Release of shares held by EBT
Share-based payment reserve movement
Transactions with shareholders
As at 31 March 2018
Year ended 31 March 2017 (restated)
As at 1 April 2016
Profit and total comprehensive income for the year
Dividends paid
Own shares acquired by EBT
Release of shares held by EBT
Share-based payment reserve movement
Transactions with shareholders
As at 31 March 2017
Called up
share
capital
£’000
55
—
—
(5)
—
—
—
(5)
50
Called up
share
capital
£’000
55
—
—
—
—
—
—
55
Share
premium
account
£’000
1,971
—
—
—
—
266
—
266
2,237
Share
premium
account
£’000
1,899
—
—
—
72
—
72
1,971
Capital
redemption
reserve
£’000
20
—
—
6
—
—
—
6
26
Capital
redemption
reserve
£’000
20
—
—
—
—
—
—
20
Retained
earnings
£’000
34,785
6,146
(6,810)
(10,000)
(952)
1,241
(172)
Total
equity
£’000
36,831
6,146
(6,810)
(9,999)
(952)
1,507
(172)
(16,693)
(16,426)
24,238
26,551
Retained
earnings
£’000
31,715
6,316
Total
equity
£’000
33,689
6,316
(3,592)
(3,592)
(775)
992
129
(775)
1,064
129
(3,246)
(3,174)
34,785
36,831
The notes on pages 85 to 115 are an integral part of these consolidated financial statements.
The comparative period has been restated. A reconciliation of the previously published statement of changes in equity to the restated statement is
provided in note 29.
80
Record plc Annual Report 2018Financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 March
Net cash inflow from operating activities
Cash flow from investing activities
Purchase of intangible software
Purchase of property, plant and equipment
Sale/(purchase) of money market instruments with maturity > 3 months
Interest received
Net cash inflow/(outflow) from investing activities
Cash flow from financing activities
Exercise of share options
Purchase of own shares
Dividends paid to equity shareholders
Cash outflow from financing activities
Net decrease in cash and cash equivalents in the year
Effect of exchange rate changes
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Closing cash and cash equivalents consist of:
Cash
Cash equivalents
Cash and cash equivalents
Note
24
2018
£’000
2,746
(82)
(236)
Restated
2017
£’000
7,107
(189)
(899)
7,904
(5,082)
77
112
7,663
(6,058)
—
(10,367)
8
(6,810)
(17,177)
(6,768)
146
19,120
12,498
4,411
8,087
16
12,498
28
(221)
(3,592)
(3,785)
(2,736)
136
21,720
19,120
7,457
11,663
19,120
The notes on pages 85 to 115 are an integral part of these consolidated financial statements.
The comparative period has been restated. A reconciliation of the previously published statement of cash flows to the restated statement is
provided in note 29.
81
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 March
Non‑current assets
Investments
Total non‑current assets
Current assets
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Corporation tax liabilities
Total current liabilities
Total net assets
Equity
Issued share capital
Share premium account
Capital redemption reserve
Retained earnings
Total equity
Note
12
16
17
17
19
2018
£’000
5,288
5,288
2
2
2017
£’000
4,197
4,197
2
2
5,290
4,199
(1,093)
—
(1,093)
4,197
50
1,809
26
2,312
4,197
(11)
(67)
(78)
4,121
55
1,809
20
2,237
4,121
The Company’s total comprehensive income for the year (which is principally derived from intra-group dividends) was £16,688,038
(2017: £3,855,425).
Approved by the Board on 14 June 2018 and signed on its behalf by:
Neil Record
Chairman
Steve Cullen
Chief Financial Officer
The notes on pages 85 to 115 are an integral part of these consolidated financial statements.
82
Record plc Annual Report 2018Financial statements
COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 March 2018
As at 1 April 2017
Profit and total comprehensive income for the year
Share buy back
Dividends paid
Share option reserve movement
Transactions with shareholders
As at 31 March 2018
Year ended 31 March 2017
As at 1 April 2016
Profit and total comprehensive income for the year
Dividends paid
Share option reserve movement
Transactions with shareholders
As at 31 March 2017
Called up
share
capital
£’000
55
—
(5)
—
—
(5)
50
Called up
share
capital
£’000
55
—
—
—
—
55
Share
premium
account
£’000
1,809
—
—
—
—
—
1,809
Share
premium
account
£’000
1,809
—
—
—
—
1,809
Capital
redemption
reserve
£’000
Total
Retained shareholders’
equity
earnings
£’000
£’000
20
—
6
—
—
6
26
2,237
16,688
(10,000)
(6,810)
197
4,121
16,688
(9,999)
(6,810)
197
(16,613)
(16,612)
2,312
4,197
Capital
redemption
reserve
£’000
20
—
—
—
—
20
Retained
earnings
£’000
1,773
3,855
Total
shareholders’
equity
£’000
3,657
3,855
(3,592)
(3,592)
201
(3,391)
2,237
201
(3,391)
4,121
The notes on pages 85 to 115 are an integral part of these consolidated financial statements.
83
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
COMPANY STATEMENT OF CASH FLOWS
Year ended 31 March
Net cash inflow from operating activities
Cash flow from investing activities
Dividends received
Investment in subsidiaries
Investment in seed funds
Interest received
Net cash inflow from investing activities
Cash flow from financing activities
Purchase of own shares
Dividends paid to equity shareholders
Cash outflow from financing activities
Net increase in cash and cash equivalents in the year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Closing cash and cash equivalents consist of:
Cash
Cash equivalents
Cash and cash equivalents
The notes on pages 85 to 115 are an integral part of these consolidated financial statements.
Note
24
2018
£’000
1,015
2017
£’000
—
16,810
3,592
(16)
(1,000)
1
—
—
—
15,795
3,592
19
8
(10,000)
(6,810)
(16,810)
—
(3,592)
(3,592)
—
2
2
2
—
2
—
2
2
2
—
2
84
Record plc Annual Report 2018Financial statements
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2018
These financial statements exclude disclosures that are both immaterial and judged to be unnecessary to understand our results and
financial position.
1. Accounting policies
In order to provide more clarity to the notes to the financial statements, accounting policy descriptions appear at the beginning of the note
to which they relate, and are shown in purple text.
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out in the notes below.
These policies have been consistently applied to all periods presented unless otherwise stated.
(a) Accounting convention
Basis of preparation
The Group and Company have prepared their financial statements under International Financial Reporting Standards (“IFRSs”) as adopted by
the European Union. IFRSs comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”) and
the International Financial Reporting Interpretations Committee (“IFRIC”) as adopted in the European Union as at 31 March 2018. The financial
statements have been prepared on a historical cost basis, modified to include fair valuation of derivative financial instruments.
The Directors are satisfied that the Company and the Group have adequate resources with which to continue to operate for the foreseeable
future. Please refer to the Directors’ report on page 72 for more detail. For this reason the financial statements have been prepared on a
going concern basis.
The preparation of financial statements in accordance with the recognition and measurement principles set out in IFRSs requires management to
make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and
expenses. The bases for management judgements, estimates and assumptions are discussed further in note 2.
Restatement of prior year financial statements
Management has reviewed the basis of preparation of the Group’s consolidated financial statements, and has implemented two changes, which
have a material impact on the presentation of the primary statements. The first change relates to the classification of the external investment in
the seed funds (formerly classified as non-controlling interest) and the second change to the presentation of other income.
Although the changes give rise to material changes on the face of the statement of comprehensive income, the statement of financial position and
the statement of changes in equity, there is no change to profit attributable to owners of the parent, earnings per share or equity attributable to
owners of the parent.
A reconciliation of the primary financial statements for the previously published comparative period (year ended 31 March 2017) to the restated
primary statements is provided in note 29, together with a reconciliation of the primary financial statements for the year ended 31 March 2018
prepared under the historic basis of interpretation to the primary financial statements under the new basis of interpretation.
Impact of new accounting standards
There have been no new or amended standards adopted in the financial year beginning 1 April 2017 which have had a material impact on the
Group or Company.
The following standards and interpretations relevant to the Group’s operations were issued by the IASB but are not yet mandatory:
IFRS 9 – Financial Instruments
IFRS 9 is effective for annual periods beginning on or after 1 January 2018. IFRS 9 replaces the classification and measurement models for
financial instruments in IAS 39 (Financial Instruments: recognition and measurement) with three classification categories: amortised cost, fair value
through profit or loss and fair value through other comprehensive income.
Under IFRS 9, the Group’s business model and the contractual cash flows arising from its investments in financial instruments will determine the
appropriate classification. The Group has assessed its balance sheet assets in accordance with the new classification requirements, and does
not anticipate any changes in the classification and measurement for any of the Group’s financial assets or liabilities.
In addition, IFRS 9 introduces an expected loss model for the assessment of impairment of financial assets. The current (incurred loss) model
under IAS 39 requires the Group to recognise impairment losses when there is objective evidence that an asset is impaired. Under the expected
loss model, impairment losses are recorded if there is an expectation of credit losses, even in the absence of a default event. This model is not
applicable for investments held at fair value through profit or loss. Therefore the assets on the Group’s balance sheet to which the expected loss
model applies are receivables (note 14), which do not have a history of credit risk or expected future recoverability issues. Therefore, no change
to the carrying values of the Group’s assets is expected as a result of adoption of the new standard.
The new hedging requirements under IFRS 9, which are optional to adopt, provide increased flexibility in relation to hedge effectiveness in order
to better align hedge accounting with a company’s risk management policies. The Group has not applied hedge accounting in the past, and does
not anticipate applying the IFRS 9 hedge accounting requirements in the future.
The Group does not anticipate that IFRS 9 will have a material impact on its reported results but notes that IFRS 9 also requires increased
disclosures in relation to the Group’s risk management strategy.
85
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
1. Accounting policies continued
(a) Accounting convention continued
Impact of new accounting standards continued
IFRS 15 – Revenue from Contracts with Customers
IFRS 15 is effective for annual periods beginning on or after 1 January 2018, replacing IAS 18 “Revenue” and related interpretations. IFRS 15
establishes a single, principles-based revenue recognition model to be applied to all contracts with customers. The core principle of IFRS 15
is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled to in exchange for those goods or services. IFRS 15 introduces a five-step approach to
revenue recognition:
(1) identify the contract with the customer;
(2) identify the performance obligations in the contract;
(3) determine the transaction price;
(4) allocate the transaction price to the performance obligations in the contract; and
(5) recognise revenue when or as the entity satisfies a performance obligation.
IFRS 15 is more prescriptive in terms of its recognition criteria, with certain specific requirements in respect of variable fee income such that it is only
recognised where the amount of revenue would not be subject to significant future reversals. New disclosure requirements are also introduced.
The Group has assessed how these changes impact the timing of management and performance fee recognition in the context of its existing
investment management agreements. Management fee revenues are recorded on a monthly basis as the underlying currency management
service occurs, there are no performance or other obligations (excluding standard duty of care requirements). Performance fee revenues are not
considered to be highly probable until the end of a contractual performance period and therefore are not recognised until they crystallise, at which
time they are payable by the client and cannot be clawed-back. There are no other performance obligations or services provided which suggest
these have been earned either before or after crystallisation date.
As a result of this assessment the Group has not identified any material changes to current revenue recognition principles.
The Group does not anticipate that IFRS 15 will have a material impact on its reported results.
IFRS 16 – Leases
IFRS 16 is effective for annual periods beginning on or after 1 January 2019 and replaces IAS 17 “Leases” and related interpretations.
This introduces a comprehensive model for the identification of lease arrangements and accounting treatment for both lessors and lessees,
which distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. There is substantially
no change to the accounting requirements for lessors. IFRS 16 requires operating leases, where the Group is the lessee, to be included on the
Group’s balance sheet, recognising a right-of-use (“ROU”) asset and a related lease liability representing the present value obligation to make lease
payments. Certain optional exemptions are available under IFRS 16 for short-term (less than twelve months) and low-value leases. The ROU asset
will be assessed for impairment annually (incorporating any onerous lease assessments) and depreciated on a straight-line basis, adjusted for any
remeasurements of the lease liability. The lease liability will subsequently be adjusted for lease payments and interest, as well as the impact of any
lease modifications. IFRS 16 also requires extensive disclosures detailing the impact of leases on the Group’s financial position and results.
The adoption of IFRS 16 will result in a significant gross-up of the Group’s reported assets and liabilities on the balance sheet. The operating
lease expense which is currently recognised within operating lease rentals in the Group’s income statement (note 4) will no longer be incurred and
instead depreciation expense (of the ROU asset) and interest expense (unwind of the discounted lease liability) will be recognised. This will also
result in a different total annual expense profile under the new standard (with the expense being front-loaded in the earlier years of the lease term
as the discount unwind on the lease liability reduces over time).
The Group has considered the available transition options, and has provisionally decided to apply modified retrospective option 1 and currently
estimates that the impact will be a gross-up of up to £1.6 million for ROU lease assets and £1.8 million in relation to lease liabilities, with
£0.2 million deducted from brought-forward reserves on transition date in 2019. The initial reserves impact will be offset over time by a lower
annual Group income statement charge, as the total charge over the life of each lease is the same as under the current IAS 17 requirements.
No other standards or interpretations issued and not yet effective are expected to have an impact on the Group’s financial statements.
(b) Basis of consolidation
The consolidated financial information contained within the financial statements incorporates financial statements of the Company and its
subsidiaries drawn up to 31 March 2018. Subsidiaries are entities controlled by the Company and are included from the date that control
commences until the date that control ceases. Control is achieved where the Company is exposed to or has rights over variable returns from
its involvement with the entity and it has the power to affect returns.
An Employee Benefit Trust has been established for the purposes of satisfying certain share-based awards. As the Group has “de facto” control
over this special purpose entity, the trust is fully consolidated within the financial statements.
The Group has investments in four funds. These funds are held by Record plc and represent seed capital investments by the Group. If the Group
is in a position to be able to control a fund by virtue of holding a majority of units in the fund, then the fund is consolidated within the Group
financial statements. We consider that the Group exerts such control in cases where it (either in isolation or together with its related parties) holds
a majority of units in the fund. Such funds are consolidated either on a line-by-line basis, or if it meets the definition of a disposal group held for
sale it is classified and accounted for on that basis. In the case that the Group does not control a fund for the complete reporting period, then the
fund is consolidated only for the part of the reporting period for which the Group has control over the entity.
86
Record plc Annual Report 2018Financial statements Where the Group controls an entity, but does not own all the share capital of that entity, the interest of the other shareholders’ non-controlling
interests is stated within equity at the non-controlling interests’ proportion of the fair value of the recognised assets and liabilities. In the case of
the funds controlled by the Group, the interests of any external investor is recognised as a financial liability as investments in the fund are not
considered to be equity instruments.
The financial statements of subsidiary undertakings, which are prepared using uniform accounting policies, are coterminous with those of the
Company apart from those of the seeded funds which have accounting reference dates of 30 September. The consolidated financial statements
incorporate the financial performance of the seeded funds in the year ended 31 March 2018 and the financial position of the seeded funds as at
31 March 2018.
The Company is taking advantage of the exemption under the Companies Act 2006 s408(1) not to present its individual statement of
comprehensive income and related notes that form part of the financial statements. The Group’s total comprehensive income for the year includes
a profit of £16,688,038 attributable to the Company (2017: £3,855,425).
All intra-Group transactions, balances, income, expenses and dividends are eliminated on consolidation.
(c) Foreign currencies
The financial statements are presented in sterling (£), which is the functional currency of the parent company. Foreign currency transactions
are translated into the functional currency of the parent company using prevailing exchange rates which are updated on a monthly basis.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-measurement of monetary items at
year-end exchange rates are recognised in profit or loss.
(d) Financial instruments
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.
Financial assets are derecognised when the contractual rights to the cash flows from the financial assets expire, or when the financial asset and
all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.
Impairment of assets
(e)
The Group assesses whether there is any indication that any of its assets have been impaired at least annually. If such an indication exists,
the asset’s recoverable amount is estimated and compared to its carrying value.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Impairment losses are
recognised in profit or loss.
(f) Provisions and contingent liabilities
Provisions are recognised when present obligations as a result of a past event will probably lead to an outflow of economic resources from
the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the
presence of a legal or constructive commitment that has resulted from past events.
Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at
the reporting date, including the risks and uncertainties associated with the present obligation. Provisions are discounted to their present values,
where the time value of money is material. Any reimbursement that the Group can be virtually certain to collect from a third party with respect to
the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision.
All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. In those cases where the possible outflow of
economic resources as a result of present obligations is considered improbable or remote, no liability is recognised.
(g) Equity
Share capital represents the nominal (par) value of shares that have been issued. Share premium includes any premium received on issue of share
capital. Retained earnings includes all current and prior period retained profits and share-based employee remuneration. All transactions with
owners of the parent are recorded separately within equity.
2. Critical accounting estimates and judgements
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results 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
period, or in the period of the revision and future periods if the revision affects both current and future periods.
Note 1 describes the basis which the Group uses to determine whether it controls seed funds, further detail on the consolidation of seed funds
is provided in note 12. Note 20 covers the assumptions made in calculating the fair value of share options offered by the Group to its employees.
The Directors have judged that the Group does not bear substantially all the risks and rewards of ownership of its leasehold premises and
therefore accounts for the leases as operating leases as described in note 23.
87
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
3. Revenue
Revenue recognition
Revenue is recognised in profit or loss when the amount of revenue can be measured reliably, it is probable that economic benefits will flow to
the entity, the stage of completion can be measured reliably, and the costs incurred and costs to complete the transaction can be measured
reliably also.
Management fees are accrued on a daily basis, typically based upon an agreed percentage of the assets under management equivalents
(“AUME”) denominated in the client’s chosen base currency. The Group is entitled to earn performance fees from some clients where the
performance of the clients’ mandates exceeds defined benchmarks by an agreed level of outperformance over a set time period. Performance
fees are recognised at the end of each contractual performance period as this is the first point at which the fee amount can be estimated reliably
and it is probable that the fee will be received.
Segmental analysis
The Directors, who together are the entity’s Chief Operating Decision Maker, consider that its services comprise one operating segment
(being the provision of currency management services) and that it operates in a market that is not bound by geographical constraints.
The Group provides Directors with revenue information disaggregated by product, whilst operating costs, assets and liabilities are presented
on an aggregated basis. This reflects the unified basis on which the products are marketed, delivered and supported.
(a) Product revenues
The Group has split its currency management revenues by product. Other currency services income includes fees from signal hedging and
fiduciary execution.
Revenue by product type
Management fees
Dynamic Hedging
Passive Hedging
Currency for Return
Multi-Product
Total management fee income
Performance fee income
Other currency services income
Total revenue
2018
£’000
5,111
12,569
1,803
4,014
Restated
2017
£’000
5,542
12,130
1,025
4,021
23,497
22,718
—
337
—
234
23,834
22,952
(b) Geographical analysis
The geographical analysis of revenue is based on the destination i.e. the location of the client to whom the services are provided. All turnover
originated in the UK.
Revenue by geographical region
Management and performance fee income
UK
US
Switzerland
Other
Total management and performance fee income
Other currency services income
Total revenue
Other currency services income is not analysed by geographical region.
All of the Group’s tangible non-current assets are located in the UK.
2018
£’000
2,834
6,478
10,404
3,781
23,497
337
Restated
2017
£’000
3,863
4,979
11,576
2,300
22,718
234
23,834
22,952
(c) Major clients
During the year ended 31 March 2018, three clients individually accounted for more than 10% of the Group’s revenue. The three largest clients
generated revenues of £4.0 million, £3.4 million and £2.9 million in the year (2017: four largest clients generated revenues of £3.7 million,
£3.4 million, £2.9 million and £2.5 million in the year).
88
Record plc Annual Report 2018Financial statements
4. Operating profit
Operating profit for the year is stated after charging/(crediting):
Staff costs
Depreciation of property, plant and equipment
Amortisation of intangibles
Auditor fees
Fees payable to the Group’s auditor for the audit of the Company’s annual accounts
Fees payable to the Group’s auditor for the audit of subsidiary undertakings
Fees payable to the Group’s auditor and its associates for other services:
Corporation tax services
Audit-related assurance services
Other non-audit services
Operating lease rentals: land and buildings
(Gain)/loss on forward FX contracts held to hedge cash flow
Gain on derivative financial instruments held by seed funds
Exchange loss/(gain) on revaluation of external holding in seed funds
Other exchange losses/(gains)
5. Staff costs
The average number of employees, including Directors, employed by the Group during the year was:
Corporate
Client relationships
Investment research
Operations
Risk management
Support
Annual average
The aggregate costs of the above employees, including Directors, were as follows:
Wages and salaries
Social security costs
Pension costs
Other employment benefit costs
Aggregate staff costs
2018
£’000
2017
£’000
11,062
10,434
206
99
45
39
—
26
55
596
(424)
(53)
406
265
99
243
45
40
—
24
44
502
506
(612)
(420)
(450)
2018
2017
8
15
15
26
5
12
81
2018
£’000
8,280
1,184
432
1,166
9
14
12
22
5
11
73
2017
£’000
7,499
1,059
376
1,500
11,062
10,434
Other employment benefit costs include share-based payments, share option costs, and costs relating to the Record plc Share Incentive Plan.
89
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
6. Taxation – Group
Current tax is the tax currently payable based on taxable profit for the year. Current income tax assets and/or liabilities comprise those obligations
to, or claims from, fiscal authorities relating to the current or prior reporting periods, that are unpaid at the reporting date. Current tax is payable
on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have
been enacted or substantively enacted by the end of the reporting period.
The total charge for the year can be reconciled to the accounting profit as follows:
Profit before taxation
Taxation at the standard rate of tax in the UK of 19% (2017: 20%)
Tax effects of:
Other disallowable expenses and non-taxable income
Capital allowances for the year higher than depreciation
Higher tax rates on subsidiary undertakings
Adjustments recognised in current year in relation to the current tax of prior years
Adjustments recognised in current year in relation to Research and Development
claims for the years ended 31 March 2016 and 31 March 2017
Other temporary differences
Total tax expense
The tax expense comprises:
Current tax expense
Deferred tax expense/(income)
Total tax expense
2018
£’000
7,328
1,392
51
(20)
5
(10)
(240)
4
Restated
2017
£’000
7,856
1,571
18
(14)
11
—
—
(46)
1,182
1,540
1,166
16
1,182
1,599
(59)
1,540
The standard rate of UK corporation tax for the year is 19% (2017: 20%). A full corporation tax computation is prepared at the year end.
The actual charge as a percentage of the profit before tax may differ from the underlying tax rate. Differences typically arise as a result of capital
allowances differing from depreciation charged, and certain types of expenditure not being deductible for tax purposes. Other differences may
also arise.
The tax charge for the year ended 31 March 2018 was £1,182,498 (2017: £1,539,580) which was 16% of profit before tax (2017: 20%).
90
Record plc Annual Report 2018Financial statements
7. Earnings per share
Basic earnings per share is calculated by dividing the profit for the financial year attributable to equity holders of the parent by the weighted
average number of ordinary shares in issue during the year.
Diluted earnings per share is calculated as for the basic earnings per share with a further adjustment to the weighted average number of
ordinary shares to reflect the effects of all potential dilution.
There is no difference between the profit for the financial year attributable to equity holders of the parent used in the basic and diluted earnings
per share calculations.
Weighted average number of shares used in calculation of basic earnings per share
Effect of potential dilutive ordinary shares – share options
2018
2017
202,613,441 217,401,660
3,855,924
591,036
Weighted average number of shares used in calculation of diluted earnings per share
206,469,365 217,992,696
Basic earnings per share
Diluted earnings per share
pence
3.03
2.98
pence
2.91
2.90
The potential dilutive shares relate to the share options granted in respect of the Group’s Share Scheme (see note 20). There were share
options in place at the beginning of the year over 13,656,564 shares. During the year 1,760,583 share options were exercised, and a further
1,527,834 share options lapsed or were forfeited. The Group granted 3,975,000 share options with a potentially dilutive effect during the year.
Of the 14,343,147 share options in place at the end of the period, all have a dilutive impact at the year end.
8. Dividends
Interim and special dividends are recognised when paid and final dividends when approved by shareholders.
The dividends paid by the Group during the year ended 31 March 2018 totalled £6,810,361 (3.235 pence per share) which comprised a final
dividend in respect of the year ended 31 March 2017 of £2,564,080 (1.175 pence per share), a special dividend in respect of the year ended
31 March 2017 of £1,985,798 (0.91 pence per share) and an interim dividend for the year ended 31 March 2018 of £2,260,483 (1.15 pence
per share).
The dividends paid by the Group during the year ended 31 March 2017 totalled £3,591,603 (1.65 pence per share) which comprised a final
dividend in respect of the year ended 31 March 2016 of £1,790,888 (0.825 pence per share) and an interim dividend for the year ended
31 March 2017 of £1,800,715 (0.825 pence per share).
For the year ended 31 March 2018, a final ordinary dividend of 1.15 pence per share has been proposed and a special dividend of 0.50 pence
per share has been declared.
9. Retirement benefit obligations
The Group operates defined contribution pension plans for the benefit of employees. The Group makes contributions to independently
administered plans, such contributions being recognised as an expense when they fall due. The assets of the schemes are held separately
from those of the Group in independently administered funds.
The Group is not exposed to the particular risks associated with the operation of Defined Benefit plans and has no legal or constructive
obligation to make any further payments to the plans other than the contributions due.
The pension cost charge represents contributions payable by the Group to the funds and amounted to £432,180 (2017: £375,845).
91
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
10. Property, plant and equipment – Group
All property, plant and equipment assets are stated at cost less accumulated depreciation. Depreciation of property, plant and equipment is
provided to write off the cost, less residual value, on a straight-line basis over the estimated useful life:
• Leasehold improvements – period from lease commencement to the earlier of the lease termination date and the next rent review date
• Computer equipment – 2 to 5 years
• Fixtures and fittings – 4 to 6 years
Residual values, remaining useful economic lives and depreciation methods are reviewed annually and adjusted if appropriate. Gains or losses
on disposal are included in profit or loss.
The Group’s property, plant and equipment comprise leasehold improvements, computer equipment and fixtures and fittings. The carrying
amount can be analysed as follows:
Leasehold
improvements
£’000
Computer
equipment
£’000
Fixtures
and fittings
£’000
635
26
—
661
36
114
—
150
511
599
542
177
(48)
671
423
50
(48)
425
246
119
304
33
(13)
324
141
42
(12)
171
153
163
Leasehold
improvements
£’000
Computer
equipment
£’000
Fixtures
and fittings
£’000
534
635
(534)
635
534
36
(534)
36
599
—
542
106
(106)
542
483
46
(106)
423
119
59
244
158
(98)
304
222
17
(98)
141
163
22
Total
£’000
1,481
236
(61)
1,656
600
206
(60)
746
910
881
Total
£’000
1,320
899
(738)
1,481
1,239
99
(738)
600
881
81
2018
Cost
At 1 April 2017
Additions
Disposals
At 31 March 2018
Depreciation
At 1 April 2017
Charge for the year
Disposals
At 31 March 2018
Net book amounts
At 31 March 2018
At 1 April 2017
2017
Cost
At 1 April 2016
Additions
Disposals
At 31 March 2017
Depreciation
At 1 April 2016
Charge for the year
Disposals
At 31 March 2017
Net book amounts
At 31 March 2017
At 1 April 2016
92
Record plc Annual Report 2018Financial statements
11. Intangible assets
Intangible assets are shown at historical cost less accumulated amortisation and impairment losses. Amortisation is charged to profit or loss
on a straight-line basis over the estimated useful lives of the intangible assets unless such lives are indefinite. Amortisation is included within
operating expenses in the statement of comprehensive income. Intangible assets are amortised from the date they are available for use.
Useful lives are as follows:
• Software – 2 to 5 years
Amortisation periods and methods are reviewed annually and adjusted if appropriate.
The Group’s intangible assets comprises both purchased software and the capitalised cost of software development. The carrying amounts
can be analysed as follows:
2018
Cost
At 1 April 2017
Additions
Disposals
At 31 March 2018
Amortisation
At 1 April 2017
Charge for the year
Disposals
At 31 March 2018
Net book amounts
At 31 March 2018
At 1 April 2017
2017
Cost
At 1 April 2016
Additions
Disposals
At 31 March 2017
Amortisation
At 1 April 2016
Charge for the year
Disposals
At 31 March 2017
Net book amounts
At 31 March 2017
At 1 April 2016
Software
£’000
Total
£’000
1,377
1,377
82
(1)
82
(1)
1,458
1,458
1,132
1,132
99
(1)
99
(1)
1,230
1,230
228
245
Software
£’000
228
245
Total
£’000
1,189
1,189
189
—
189
—
1,378
1,378
890
243
—
890
243
—
1,133
1,133
245
299
245
299
Intangible assets includes the capitalised development costs of the Group’s middle and back office system which was completed in June 2012
and has an estimated useful economic life of five years. The annual contractual commitment for the maintenance and support of software is
£179,664 (2017: £174,941). All amortisation charges are included within administrative expenses.
93
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
12. Investments
Company
Investments in subsidiaries are shown at cost less impairment losses. The capitalised investment in respect of share-based payments offered
by subsidiaries is equal to the cumulative fair value of the amounts payable to employees recognised as an expense by the subsidiary.
Investment in subsidiaries (at cost)
Record Currency Management Limited
Record Group Services Limited
Record Portfolio Management Limited
Record Currency Management (US) Inc.
Record Currency Management (Switzerland) GmbH
Record Fund Management Limited
N P Record Trustees Limited
Total investment in subsidiaries (at cost)
Capitalised investment in respect of share‑based payments
Record Currency Management (US) Inc.
Record Group Services Limited
Total capitalised investment in respect of share‑based payments
Total investment in subsidiaries
Particulars of subsidiary undertakings
Name
Nature of business
2018
£’000
2017
£’000
10
10
10
—
16
—
—
46
77
978
1,055
1,101
10
10
10
—
—
—
—
30
68
789
857
887
Record Currency Management Limited
Currency management services (FCA registered)
Record Group Services Limited
Management services to other Group undertakings
Record Portfolio Management Limited
Dormant
Record Currency Management (US) Inc.
US advisory and service company (SEC and CFTC registered)
Record Currency Management (Switzerland) GmbH
Swiss advisory and service company
Record Fund Management Limited
N P Record Trustees Limited
Dormant
Dormant trust company
The Group’s interest in the equity capital of subsidiary undertakings is 100% of the ordinary share capital in all cases. Record Currency
Management (US) Inc. is incorporated in Delaware (registered office: Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808)
and Record Currency Management (Switzerland) GmbH is incorporated in Zürich (registered office: Münsterhof 14, 8001 Zürich). All other
subsidiaries are registered in England and Wales with their registered office at Morgan House, Madeira Walk, Windsor, Berkshire, SL4 1EP, UK.
Investment in funds
In addition to the subsidiaries listed above, the Company holds investments in several funds These funds are seed investments, which have
various investment objectives and policies and are subject to the terms and conditions of their offering documentation. The principal activity
of each is to invest capital from investors in a portfolio of assets in order to provide a return for those investors.
Group
Funds are consolidated on a line by line basis where the Group has determined that a controlling interest exists through an investment holding
in the fund, in accordance with IFRS 10 “Consolidated Financial Statements”. Otherwise, investments in funds are measured at fair value through
profit or loss.
The Group has controlled both the Record Currency – FTSE FRB10 Index Fund and the Record Currency – Strategy Development Fund
throughout the year ended 31 March 2018 and the comparative year, the year ended 31 March 2017, and both were consolidated in full,
on a line-by-line basis in the Group’s financial statements throughout these periods.
The Group was in control of the Record Currency – Emerging Market Currency Fund until 21 March 2018, at which point the Group no longer
consolidated the fund on a line-by-line basis, but the Group did consolidate the fund in full on a line-by-line basis until that date.
In February 2018, the Company invested in the Record – Currency Multi-Strategy Fund. The Group has controlled this fund since inception and
the fund is consolidated in full on a line-by-line basis.
94
Record plc Annual Report 2018Financial statements
Company
Investments in funds are measured at fair value through profit or loss.
All four fund investments are presented within investments in the Company statement of financial position.
Investment in funds
Record Currency – FTSE FRB10 Index Fund
Record Currency – Emerging Market Currency Fund
Record Currency – Strategy Development Fund
Record – Currency Multi-Strategy Fund
Total
Group
Company
2018
£’000
—
1,115
—
—
1,115
2017
£’000
—
—
—
—
—
2018
£’000
1,116
1,115
952
1,004
4,187
2017
£’000
1,146
1,104
1,060
—
3,310
All four fund entities are sub-funds of the Record Umbrella Fund, an open-ended umbrella unit trust authorised in Ireland.
13. Deferred taxation – Group
Deferred tax is the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities shown
on the statement of financial position. The amount of deferred tax provided is based on the expected manner of recovery or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be
utilised. The carrying amount of the deferred tax assets are reviewed at each statement of financial position date and reduced to the extent that it
is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.
A deferred tax liability is generally recognised for all taxable temporary differences.
Deferred tax assets or liabilities arising on goodwill are not recognised but are however recognised on separately identifiable intangible assets.
Deferred tax arising on the initial recognition of an asset or liability, other than a business combination, that at the time of the transaction affects
neither the accounting nor taxable profit or loss, is not recognised.
(Charge)/credit to income statement in year
Asset brought forward
Asset carried forward
The deferred tax asset consists of the tax effect of temporary differences in respect of:
Deferred tax allowance on unvested share options
Shortfall of taxation allowances over depreciation on fixed assets
Total
2018
£’000
(16)
102
86
2018
£’000
98
(12)
86
2017
£’000
59
43
102
2017
£’000
191
(89)
102
At the year end the Group had deferred tax assets of £85,758 (2017: £101,606). At the year end there were share options not exercised with an
intrinsic value for tax purposes of £945,864 (2017: £1,006,095). On exercise the Group will be entitled to a corporation tax deduction in respect
of the difference between the exercise price and the strike price. There is no unprovided deferred taxation.
95
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
14. Trade and other receivables
Trade and other receivables are stated at their original invoice value, as the interest that would be recognised from discounting future cash
receipts over the short credit period is not considered to be material. Individual receivables are considered for impairment when they are past
due or when other objective evidence is received that a specific counterparty will default. Impairment of trade receivables is presented within
administrative expenses.
An analysis of the Group’s receivables is provided below:
Trade receivables
Accrued income
Other receivables
Prepayments
Total
2018
£’000
5,279
582
56
858
6,775
2017
£’000
5,937
85
29
921
6,972
All amounts are short-term. The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
All of the Group’s trade and other receivables have been reviewed for indicators of impairment; no such indicators were noted. The Group has
not renegotiated the terms of any receivables in the year ended 31 March 2018. The carrying amount of receivables whose terms have been
renegotiated, that would otherwise be past due or impaired is £nil (2017: £nil).
15. Derivative financial assets and liabilities
Derivative financial instruments are initially recognised at cost on the date on which the contract is first entered into unless the fair value at
acquisition is different to cost, in which case fair value is recognised. Subsequently they are measured at fair value with gains and losses
recognised in profit or loss. Transaction costs are immediately recognised in profit or loss. The fair values of derivative financial instruments
are determined by reference to active market transactions.
The Group holds derivative financial instruments for two purposes. The Group uses forward foreign exchange contracts to reduce the risk
associated with assets denominated in foreign currencies, and additionally uses both foreign exchange options and forward foreign exchange
contracts in order to achieve a return within the seed funds. The instruments are recognised at fair value. The fair value of the contracts is
calculated using the market rates prevailing at the period end date. The net gain or loss on instruments is included within revenue.
Derivative financial assets
Forward foreign exchange contracts held to hedge non-sterling based assets
Forward foreign exchange contracts held for trading
Total
Derivative financial liabilities
Forward foreign exchange contracts held to hedge non-sterling assets
Forward foreign exchange contracts held for trading
Total
2018
£’000
199
67
266
2018
£’000
—
(29)
(29)
2017
£’000
18
35
53
2017
£’000
(5)
(43)
(48)
Derivative financial instruments held to hedge non-sterling based assets
At 31 March 2018 there were outstanding contracts with a principal value of £9,951,185 (31 March 2017: £7,786,158) for the sale of foreign
currencies in the normal course of business. The fair value of the contracts is calculated using the market forward contract rates prevailing at
31 March 2018. The Group does not apply hedge accounting.
The net gain or loss on forward foreign exchange contracts held to hedge non-sterling based assets is as follows:
Derivative financial instruments held to hedge non‑sterling based assets
Net gain/(loss) on forward foreign exchange contracts at fair value through profit or loss
2018
£’000
424
2017
£’000
(506)
96
Record plc Annual Report 2018Financial statements
Derivative financial instruments held for trading
The Record Currency – FTSE FRB10 Index Fund, the Record Currency – Emerging Market Currency Fund and the Record – Currency
Multi-Strategy Fund, use forward foreign exchange contracts in order to achieve a return. The Record Currency – Strategy Development Fund
may use a variety of instruments including forward foreign exchange contracts, options and futures in order to achieve a return.
All derivative financial instruments held by the Record Currency – Strategy Development, the Record Currency – FTSE FRB10 Index Fund and the
Record – Currency Multi-Strategy Fund were classified as held for trading throughout the period. The derivative financial instruments held by the
Record Currency – Emerging Market Currency Fund were classified as held for trading from inception until 21 March 2018 when the fund was
deconsolidated from the Group financial statements.
At 31 March 2018 there were outstanding contracts with a principal value of £15,012,327 (31 March 2017: £16,085,621).
The net gain or loss on derivative financial instruments held for trading for the year was as follows:
Derivative financial instruments held for trading
Net gain on forward foreign exchange contracts and foreign exchange options at fair value through profit or loss
2018
£’000
53
2017
£’000
612
16. Cash management
The Group’s cash management strategy employs a variety of treasury management instruments including cash, money market deposits and
treasury bills. Whilst the Group manages and considers all of these instruments as cash, which are subject to its own internal cash management
process, not all of these instruments are classified as cash or cash equivalents under IFRS.
IFRS defines cash and cash equivalents as cash in hand, on demand and collateral deposits held with banks, and other short-term highly
liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Moreover,
instruments can only generally be classified as cash and cash equivalents where they are held for the purpose of meeting short-term cash
commitments rather than for investment or other purposes.
In the Group’s judgement, bank deposits and treasury bills with maturities in excess of 3 months do not meet the definition of short-term or highly
liquid and are held for purposes other than meeting short-term commitments. In accordance with IFRS, these instruments are not categorised as
cash or cash equivalents and are disclosed as money market instruments with maturities >3 months.
Group
Company
Assets managed as cash
Bank deposits with maturities > 3 months
Treasury bills with maturities > 3 months
2018
£’000
9,698
500
2017
£’000
15,203
2,899
Money market instruments with maturities > 3 months
10,198
18,102
Cash
Bank deposits with maturities <= 3 months
Cash and cash equivalents
Total assets managed as cash
Cash and cash equivalents
Cash and cash equivalents – sterling
Cash and cash equivalents – USD
Cash and cash equivalents – CHF
Cash and cash equivalents – other currencies
Total cash and cash equivalents
The Group cash and cash equivalents balance incorporates the cash and cash equivalents held by any fund deemed to be under control of
Record plc (refer to notes 1 and 12 for explanation of accounting treatment). As at 31 March 2018, the cash and cash equivalents held by
the seed funds over which the Group had control totalled £4,969,231 (31 March 2017: £5,140,828) and the money market instruments with
maturities > 3 months held by these funds were £500,000 (31 March 2017: £2,899,233).
Group
Company
4,411
8,087
12,498
22,696
7,457
11,663
19,120
37,222
2018
£’000
3,827
2,680
4,610
1,381
2017
£’000
14,174
1,026
3,846
74
12,498
19,120
2018
£’000
2017
£’000
—
—
—
2
—
2
2
—
—
—
2
—
2
2
2018
£’000
2017
£’000
2
—
—
—
2
2
—
—
—
2
97
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
17. Current liabilities
Trade and other payables are stated at their original invoice value, as the interest that would be recognised from discounting future cash payments
over the short payment period is not considered to be material.
Trade and other payables
Trade payables
Amounts owed to Group undertaking
Other payables
Other tax and social security
Accruals
Total
Group
Company
2018
£’000
325
—
4
234
2,067
2,630
2017
£’000
418
—
82
324
2,189
3,013
2018
£’000
—
1,093
—
—
—
1,093
2017
£’000
—
11
—
—
—
11
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
Current tax liabilities
Corporation tax
Group
Company
2018
£’000
399
2017
£’000
804
2018
£’000
—
2017
£’000
67
18. Financial liabilities
Record plc has made investments in a number of funds where it is in a position to be able to control those funds by virtue of the size of its holding.
When Record plc is not the only investor in such funds and the external investment instrument does not meet the definition of an equity instrument
under IAS 32 then the instrument is classified as a financial liability. The financial liabilities are measured at cost plus movement in value of the third
party investment in the fund.
Record has seeded four funds which have been active during the year ended 31 March 2018.
The Record Currency – FTSE FRB10 Index Fund was considered to be under control of the Group as the combined holding of Record plc and
its Directors constituted a majority interest throughout the year. Similarly, the Record Currency – Strategy Development Fund is considered to be
under control of the Group as the combined holding of Record plc and its Directors has constituted a majority interest since inception.
The Record Currency – Emerging Market Currency Fund was under the control of the Group until 21 March 2018, when the redemption of units
by two Record plc Directors meant that Record could no longer control the fund as the combined holding of Record plc and its Directors no
longer constituted a majority interest from that point onwards. This fund has therefore been consolidated into the Group’s financial statements until
21 March 2018.
In February 2018, the Company invested in the Record – Currency Multi-Strategy Fund. The Group has controlled this fund since inception and
the fund is consolidated in full on a line-by-line basis.
The mark to market value of units held by investors in these funds other than Record plc are shown as financial liabilities in the Group financial
statements, in accordance with IFRS.
Mark to market value of external holding in seeded funds consolidated into the accounts of the Record Group
Record Currency – Emerging Market Currency Fund
Record Currency – FTSE FRB10 Index Fund
Record – Currency Multi-Strategy Fund
Record Currency – Strategy Development Fund
2018
£’000
—
459
2,008
—
Restated
2017
£’000
4,308
471
n/a
—
2,467
4,779
The financial liabilities relate only to the fair value of the external investors’ holding in the seed funds, and are in no sense debt.
Financial liabilities relating to the fair value of external investors’ holdings in the seed funds were previously classified in equity as non-controlling
interests. A reconciliation of the historic presentation to the revised presentation is provided in note 29.
98
Record plc Annual Report 2018Financial statements
19. Issued share capital
The share capital of Record plc consists only of fully paid ordinary shares with a par value of 0.025p each. All shares are equally eligible to
receive dividends and the repayment of capital and represent one vote at the shareholders’ meeting.
Authorised
Ordinary shares of 0.025p each
Called up, allotted and fully paid
Ordinary shares of 0.025p each
2018
2017
£’000
Number
£’000
Number
100 400,000,000
100 400,000,000
50 199,054,325
55 221,380,800
On 17 July 2017 a total of 22,326,475 ordinary shares were purchased by the Company for a total cost of £10,000,028.15. The share purchase
was made following the Tender Offer announced on 21 June 2017 and approved by special resolution at the General Meeting on 14 July 2017.
Following the share purchase, the 22,326,475 shares were cancelled.
Movement in Record plc shares held by the Record plc Employee Benefit Trust (“EBT”)
The EBT was formed to hold shares acquired under the Record plc share-based compensation plans. Under IFRS the EBT is considered to be
under de facto control of the Group, and has therefore been consolidated into the Group financial statements.
Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the Group statement of comprehensive income.
Record plc shares held by EBT as at 31 March 2016
Adjustment for net sales by EBT
Record plc shares held by EBT as at 31 March 2017
Adjustment for net sales by EBT
Record plc shares held by EBT as at 31 March 2018
Number
4,942,248
(1,323,253)
3,618,995
(1,225,563)
2,393,432
The holding of the EBT comprises own shares that have not vested unconditionally to employees of the Group. Own shares are recorded at
cost and are deducted from retained earnings.
Further information regarding the Record plc share-based compensation plans and relevant transactions made during the year is included in
note 20.
20. Share-based payments
During the year ended 31 March 2018 the Group has managed the following share-based compensation plans:
a) The Group Profit Share Scheme: share awards issued under the Group Profit Share Scheme are classified as share-based payments with cash
alternatives under IFRS 2.
b) The Record plc Share Scheme: share options issued under the Record plc Share Scheme are classified as equity-settled share-based
payments under IFRS 2.
c) The Record plc Share Incentive Plan: the Group operates the Record plc Share Incentive Plan (“SIP”) to encourage more widespread
ownership of Record plc shares by employees. The SIP is a tax-approved scheme offering attractive tax savings for employees retaining their
shares in the scheme over the medium to long term.
All obligations arising from the three schemes have been fulfilled through purchasing shares in the market.
(a) Group Profit Share Scheme
Share-based payments with cash alternatives
These transactions are compound financial instruments, which include a debt element and a cash element. The fair value of the debt component
of the amounts payable to the employee is calculated as the cash amount alternative offered to the employee at grant date and the fair value of
the equity component of the amounts payable to the employee is calculated as the market value of the share award at grant date less the cash
forfeited in order to receive the share award. The debt component is charged to profit or loss over the period in which the award is earned and
remeasured at fair value at each reporting date. The equity component is charged to profit or loss over the period in which the award is earned.
The Group Profit Share Scheme allocates a proportion of operating profits to a profit share pool to be distributed between all employees of
the Group. The Remuneration Committee has the discretion to vary the proportion allocated to the profit share pool between 25% and 35%
of operating profits, with the intention of maintaining an average level of 30% of operating profits over the medium term. Directors and senior
employees receive one third of their profit share in cash, one third in shares (“Earned Shares”) and may elect to receive the final third as cash
only or to allocate some, or all, of the amount for the purchase of Additional Shares. The charge to profit or loss in respect of Earned Shares in
the period was £682,758 (2017: £733,858). Other employees receive two thirds of their profit share in cash and may elect to receive the final
third as cash only or to allocate some, or all, of the amount for the purchase of Additional Shares.
99
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
20. Share-based payments continued
(a) Group Profit Share Scheme continued
Share-based payments with cash alternatives continued
Prior to 1 October 2017, if an individual elected to receive Additional Shares, the Group simultaneously awarded a Matching Share value amount
using a multiple decided by the Remuneration Committee. The multiple was dependent on the level of seniority of the employee. The number of
shares was determined by the post-tax cash attributed to Earned Shares plus Additional Shares plus Matching Shares divided by the aggregate
market value achieved on the purchase of all such shares in the market. The charge to profit or loss in respect of Matching Shares in the period
was £141,078 (2017: £292,525).
From 1 October 2017, as a result of changes to the Group Profit Share Scheme, Matching Shares are no longer awarded by the Group.
Shares awarded under the Group Profit Share Scheme do not include any vesting restrictions but rather restrictions over subsequent sale and
transfer. All shares which are the subject of share awards vest immediately and are transferred to a nominee allowing the employee, as beneficial
owner to retain full rights in respect of the shares purchased. However, these shares cannot be sold, transferred or otherwise disposed of without
the consent of the Remuneration Committee except as follows:
• Earned Shares – one third on each anniversary of the Profit Share Payment date; and
• Matching Shares, and Additional Shares received in respect of elections made prior to 1 October 2017 – the third anniversary of the Profit
Share Payment date for Directors and senior employees and the second anniversary of the Profit Share Payment date for all other employees.
The Group Profit Share Scheme rules contain clawback provisions allowing for the repayment of profit share payments under certain
circumstances including a material breach of contract, an error in performance of duties or a restatement of accounts which leads to a change in
any prior award under the scheme.
Shares awarded under this scheme have been purchased in the market.
(b) The Record plc Share Scheme
Equity-settled share-based payments
The fair value of the amounts payable to employees under these awards is recognised as an expense over the vesting period of the award,
with a corresponding increase in equity. All such awards made by the Group involve the parent company granting rights to its equity instruments
to employees of its subsidiary. Consequently the subsidiary measures the services received from its employees in accordance with the above
classification under IFRS 2 and recognises a corresponding increase in equity as a contribution from the parent. The parent has the obligation
to settle the transaction with the subsidiary’s employees and therefore recognises an increase in its investment in the subsidiary and a
corresponding increase in equity.
The fair value of options granted is measured at grant date using an appropriate valuation model, taking into account the terms and
conditions upon which the instruments were granted. The fair value amounts for the options issued since flotation were determined using
quoted share prices.
The Record plc Share Scheme allows deferred share awards to be granted to employees and Directors in the Record Group. Part 1 of the Record
plc Share Scheme allows the grant of Unapproved Options to employees and Directors and Part 2 allows the grant of HMRC Approved Options
to employees and Directors. Each participant may be granted Approved Options over shares with a total market value of up to £30,000 on the
date of grant. There is no such limit on the value of grant for Unapproved Options, which have historically been granted with a market value
exercise price in the same way as for the Approved Options.
Options over an aggregate of 3,975,000 shares were granted under the Share Scheme during the year (2017: 4,197,521), of which 2,261,000
were made subject to Unapproved Options and 1,714,000 to Approved Options (2017: 3,790,000 made subject to Unapproved Options and
407,521 to Approved Options). All options were granted with an exercise price per share equal to the share price prevailing at the time of grant.
The 1,662,000 Approved Options issued to employees on 26 January 2018 each become exercisable on the fourth anniversary of the date of
grant, subject to the employee being in employment with the Group at the relevant vesting date and to the extent performance conditions have
been satisfied.
The 328,000 Unapproved Options issued to employees on 26 January 2018 each become exercisable in four equal tranches on the first, second,
third and fourth anniversary of the date of grant, subject to the employee being in employment with the Group at the relevant vesting date and to
the extent performance conditions have been satisfied.
The 52,000 Approved Options issued to Directors on 26 January 2018 each become exercisable in three equal tranches on the third, fourth and
fifth anniversary of the date of grant, subject to the employee being in employment with the Group at the relevant vesting date and to the extent
performance conditions have been satisfied.
The 1,933,000 Unapproved Options issued to Directors on 26 January 2018 each become exercisable in three equal tranches on the third, fourth
and fifth anniversary of the date of grant, subject to the employee being in employment with the Group at the relevant vesting date and to the
extent performance conditions have been satisfied.
100
Record plc Annual Report 2018Financial statements The fair value of the services provided by employees has been calculated indirectly by reference to the fair value of the equity instruments granted.
Fair value amounts for the options granted in the year ended 31 March 2018 were determined using a Black-Scholes option-pricing method and
the following assumptions:
Model input
Share price
Exercise price
Expected volatility
Option life
Risk-free interest rate (%)
Expected volatility is based on historical volatility.
Weighted average value
43.5p
43.5p
37%
4.0 years
1.28%
The Group share-based payment expense in respect of the Share Scheme was £197,740 for the year ended 31 March 2018 (2017: £200,220).
Outstanding share options
At 31 March 2018, the total number of ordinary shares of 0.025p outstanding under Record plc share compensation schemes was 14,343,147
(2017: 13,656,564). These deferred share awards and options are over issued shares, a proportion of which are hedged by shares held in an
Employee Benefit Trust. Details of outstanding share options and deferred shares awarded to employees are set out below:
Granted
Exercised
Lapsed/ At 31 March
2018
forfeited
Earliest
vesting date
Latest
vesting date1
Exercise
price
Date of grant
27/09/13
27/09/13
18/11/13
26/11/14
24/03/15
24/03/15
01/12/15
27/01/16
27/01/16
27/01/16
27/01/16
30/11/16
30/11/16
30/11/16
31/01/17
26/01/18
26/01/18
26/01/18
26/01/18
At 1 April
2017
480,000
327,500
933,334
2,160,000
270,000
1,385,250
1,800,000
993,750
709,209
327,500
72,500
328,574
1,590,000
2,200,000
78,947
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(480,000)
—
(302,500)
(25,000)
—
—
27/09/17
27/09/17
£0.3085
27/09/14
27/09/17
£0.3085
(233,333)
(233,334)
466,667
18/11/16
18/11/18
£0.3000
—
—
(720,000)
1,440,000
26/11/17
26/11/19
£0.3586
(42,000)
228,000
24/03/19
24/03/19
£0.3450
(372,250)
(268,500)
744,500
24/03/16
24/03/19
£0.3450
—
—
—
—
—
—
—
1,800,000
01/12/18
01/12/20
£0.2888
(75,000)
918,750
27/01/17
27/01/20
£0.2450
(24,000)
685,209
27/01/20
27/01/20
£0.2450
—
—
327,500
27/01/19
27/01/21
£0.2450
72,500
27/01/19
27/01/21
£0.2450
(40,000)
288,574
30/11/20
30/11/20
£0.34072
(372,500)
(100,000)
1,117,500
30/11/17
30/11/20
£0.34072
—
—
—
—
—
—
—
—
—
—
—
—
2,200,000
30/11/19
30/11/21
£0.34072
78,947
31/01/21
31/01/21
£0.38000
1,662,000
26/01/22
26/01/23
£0.4350
328,000
26/01/19
26/01/23
£0.4350
52,000
26/01/21
26/01/24
£0.4350
1,933,000
26/01/21
26/01/24
£0.4350
—
—
—
—
1,662,000
328,000
52,000
1,933,000
Total options
13,656,564
3,975,000
(1,760,583)
(1,527,834) 14,343,147
Weighted average
exercise price of options
£0.32
£0.44
£0.32
£0.34
£0.35
During the year 1,760,583 options were exercised. The weighted average share price at date of exercise was £0.47. At 31 March 2018 a total of
678,500 options had vested and were exercisable.
1. Under the terms of the deeds of grants, options are exercisable for a year following the vesting date.
101
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
20. Share-based payments continued
(b) The Record plc Share Scheme continued
Outstanding share options continued
The Directors’ interests in the combined share schemes are as follows:
Record plc Group Profit Share Scheme (interest in restricted share awards)
James Wood-Collins
Leslie Hill
Bob Noyen
Steve Cullen
Record plc Share Scheme (interest in unvested share options)
James Wood-Collins
Leslie Hill
Bob Noyen
Steve Cullen
Ordinary shares held as at
31 March
2018
31 March
2017
375,408
573,568
1,008,518
759,618
324,614
374,641
361,076
380,429
3,286,667
2,663,334
1,800,000
1,730,000
1,800,000
1,730,000
1,405,000
1,370,000
Performance measures
Performance conditions attached to all options granted to Board Directors differ to those granted for all other staff. All Executive Director option
awards are subject to a performance condition and vest on each of the third, fourth and fifth anniversaries of the date of grant subject to an
earnings per share (“EPS”) hurdle linked to the annualised EPS growth for the respective three, four and five-year periods from grant. Vesting
is on a stepped basis, with 25% of each tranche vesting if EPS growth over the relevant period is at least RPI plus 4% per annum, increasing
through 50%, 75% and with 100% vesting if EPS growth exceeds RPI plus 13%, as shown in the table below. Options awarded subject to EPS
performance conditions are valued using a Black-Scholes model.
Record’s average EPS growth
>RPI growth + 13%
>RPI growth + 10%, =RPI growth + 7%, =RPI growth + 4%, = 3 months
Cash and cash equivalents
2018
£’000
5,279
582
56
266
10,198
12,498
28,879
2017
£’000
5,937
85
29
53
18,102
19,120
43,326
103
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
21. Financial risk management continued
Credit risk continued
The debtors’ age analysis is also evaluated on a regular basis for potential doubtful debts. It is management’s opinion that no provision for
doubtful debts is required. The table below is an analysis of trade receivables and accrued income by due date:
At 31 March 2018
Trade receivables
Accrued income
At 31 March 2017
Trade receivables
Accrued income
Carrying
amount
£’000
Neither
impaired nor
past due
£’000
0‑3 months
past due
£’000
More than
3 months
past due
£’000
5,279
582
5,861
4,551
582
5,133
88%
726
—
726
12%
2
—
2
0%
Carrying
amount
£’000
Neither
impaired nor
past due
£’000
5,937
5,790
85
6,022
85
5,875
98%
0-3 months
past due
£’000
More than
3 months
past due
£’000
147
—
147
2%
—
—
—
0%
The Group offers standard credit terms of 30 days from invoice date. It is the Group’s policy to assess debtors for recoverability on an individual
basis and to make a provision where it is considered necessary. In assessing recoverability the Group takes into account any indicators of
impairment up to the reporting date. The application of this policy generally results in debts that are 0-3 months overdue not being provided for
unless individual circumstances indicate that a debt is impaired.
Trade receivables are made up of 52 debtors’ balances (2017: 54). The largest individual debtor corresponds to 18% of the total balance
(2017: 16%). Debtor days, based on the generally accepted calculation of debtor days, is 81 days (2017 (restated): 94 days). This reflects
the quarterly billing cycle used by the Group for the vast majority of its fees. As at 31 March 2018 12.4% of debt was overdue (2017: 2.4%).
No debtors’ balances have been renegotiated during the year or in the prior year.
Liquidity risk
The Group is exposed to liquidity risk, namely that it may be unable to meet its payment obligations as they fall due. The Group maintains
sufficient cash and marketable securities to be able to meet all such obligations. Management review cash flow forecasts on a regular basis to
determine whether the Group has sufficient cash reserves to meet the future working capital requirements and to take advantage of business
opportunities. The average creditor payment period is 22 days (2017: 33 days).
Contractual maturity analysis for financial liabilities:
Carrying
amount
£’000
325
2,067
29
Carrying
amount
£’000
418
2,189
48
Due or due Due between Due between
3 months
in less than
and 1 year
1 month
£’000
£’000
1 and
3 months
£’000
325
164
25
—
838
4
—
1,065
—
Due or due Due between Due between
3 months
in less than
and 1 year
1 month
£’000
£’000
1 and
3 months
£’000
272
90
45
27
1,027
3
119
1,072
—
At 31 March 2018
Trade payables
Accruals
Derivative financial liabilities
At 31 March 2017
Trade payables
Accruals
Derivative financial liabilities
104
Record plc Annual Report 2018Financial statements
Interest rate risk
Interest rate risk is the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes
in market interest rates. Interest rate risk arises from interest-bearing financial assets and liabilities held by the Group. Interest-bearing assets
comprise money market instruments and cash and cash equivalents which are considered to be short-term liquid assets. It is the Group’s policy
to settle trade payables within the credit terms allowed and the Group does not therefore incur interest on overdue balances.
A sensitivity analysis has not been disclosed for the impact of interest rate changes as any reasonable range of change in interest rate would not
directly have a material impact on profit or equity.
Interest rate profiles
At 31 March 2018
Financial assets
Trade receivables
Accrued income
Other receivables
Derivative financial assets at fair value through profit or loss
Money market instruments with maturities > 3 months
Cash and cash equivalents
Total financial assets
Financial liabilities
Trade payables
Accruals
Derivative financial liabilities at fair value through profit or loss
Financial liabilities
Total financial liabilities
At 31 March 2017
Financial assets
Trade receivables
Accrued income
Other receivables
Derivative financial assets at fair value through profit or loss
Money market instruments with maturities > 3 months
Cash and cash equivalents
Total financial assets
Financial liabilities
Trade payables
Accruals
Derivative financial liabilities at fair value through profit or loss
Financial liabilities
Total financial liabilities
Fixed
rate
£’000
Floating
rate
£’000
No interest
rate
£’000
Total
£’000
—
—
—
—
10,198
8,087
18,285
—
—
—
—
—
—
—
—
—
—
4,411
4,411
—
—
—
—
—
5,279
5,279
582
56
266
—
—
6,183
582
56
266
10,198
12,498
28,879
(325)
(325)
(2,067)
(2,067)
(29)
(2,467)
(4,888)
(29)
(2,467)
(4,888)
Total
£’000
Fixed
rate
£’000
Floating
rate
£’000
No interest
rate
£’000
—
—
—
—
18,102
11,663
29,765
—
—
—
—
—
—
—
—
—
—
7,457
7,457
—
—
—
—
—
5,937
5,937
85
29
53
—
—
6,104
85
29
53
18,102
19,120
43,326
(418)
(418)
(2,189)
(2,189)
(48)
(4,779)
(7,434)
(48)
(4,779)
(7,434)
105
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
21. Financial risk management continued
Foreign currency risk
Foreign currency risk refers to the risk that the value of a financial commitment or recognised asset or liability will fluctuate due to changes
in foreign currency rates. The Group makes use of forward foreign exchange contracts to manage the risk relating to future transactions in
accordance with the Group’s risk management policy.
The Group is exposed to foreign currency risk on sales and cash holdings that are denominated in a currency other than sterling, and also on
assets and liabilities held by the Record Currency – Strategy Development Fund (formerly Global Alpha Fund). The principal currencies giving
rise to this risk are the US dollar, the Swiss franc, the euro and the Canadian dollar.
During the year ended 31 March 2018, the Group invoiced the following amounts in currencies other than sterling:
Swiss franc (CHF)
US dollar (USD)
Euro (EUR)
Canadian dollar (CAD)
Swedish krona (SEK)
Singapore dollar (SGD)
Local
currency
value
‘000
Value in
reporting
currency
£’000
13,045
10,053
9,760
2,683
660
784
34
7,230
2,361
385
70
19
20,118
The value of revenues for the year ended 31 March 2018 that were denominated in currencies other than sterling was £20.1 million
(31 March 2017: £19.5 million).
Record’s policy is to reduce the risk associated with the Group’s sales denominated in foreign currencies by using forward fixed rate currency
sales contracts, taking into account any forecast foreign currency cash flows.
The settlement of these forward foreign exchange contracts is expected to occur within the following three months. Changes in the fair values
of forward foreign exchange contracts are recognised directly in profit or loss.
The cash denominated in currencies other than sterling (refer to note 16), is covered by the Group’s hedging process, therefore the Directors
consider that the foreign currency risk on cash balances is not material.
Foreign currency risk – sensitivity analysis
The Group has considered the sensitivity to exchange rate movements by considering the impact on those revenues, costs, assets and
liabilities denominated in foreign currencies as experienced in the given period.
Sterling weakening by 10% against the dollar
Sterling strengthening by 10% against the dollar
Sterling weakening by 10% against the Swiss franc
Sterling strengthening by 10% against the Swiss franc
Impact on profit after tax
for the year ended 31 March
Impact on total equity
as at 31 March
2018
£’000
469
(469)
593
(593)
Restated
2017
£’000
469
(469)
621
(621)
2018
£’000
469
(469)
593
(593)
Restated
2017
£’000
469
(469)
621
(621)
Sterling/US dollar exchange rate
The impact of a change of 10% has been selected as this is considered reasonable given the current level of exchange rates and the volatility
observed on a historical basis and market expectations for future movement. When applied to the average sterling/USD exchange rate of
£/$1.34 this would result in sterling weakening to £/$1.22 and sterling strengthening to £/$1.49.
Sterling/Swiss franc exchange rate
The impact of a change of 10% has been selected as this is considered reasonable given the current level of exchange rates and the volatility
observed on a historical basis and market expectations for future movement. When applied to the average sterling/CHF exchange rate of
£/CHF1.29 this would result in sterling weakening to £/CHF1.18 and sterling strengthening to £/CHF1.44.
Sensitivity analyses have not been disclosed for other currencies as any reasonable range of change in exchange rate would not have a
material impact on profit or equity.
106
Record plc Annual Report 2018Financial statements
22. Fair value measurement
The following table presents financial assets and liabilities measured at fair value in the consolidated statement of financial position in accordance
with the fair value hierarchy. This hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in
measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The level within which the financial asset or liability is classified is determined based on the lowest level of input to the fair value measurement.
The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy as follows:
Financial assets at fair value through profit or loss
Forward foreign exchange contracts used for hedging
Forward foreign exchange contracts used for seed funds
Financial liabilities at fair value through profit or loss
Forward foreign exchange contracts used for hedging
Forward foreign exchange contracts used for seed funds
Total
Financial assets at fair value through profit or loss
Forward foreign exchange contracts used for hedging
Forward foreign exchange contracts used for seed funds
Financial liabilities at fair value through profit or loss
Forward foreign exchange contracts used for hedging
Forward foreign exchange contracts used for seed funds
Total
2018
£’000
Level 1
£’000
Level 2
£’000
Level 3
£’000
199
67
(29)
—
237
—
—
—
—
—
199
67
(29)
—
237
—
—
—
—
—
2017
£’000
Level 1
£’000
Level 2
£’000
Level 3
£’000
18
35
(5)
(43)
5
—
—
—
—
—
18
35
(5)
(43)
5
—
—
—
—
—
There have been no transfers between levels in the reporting period (2017: none).
Basis for classification of financial instruments classified as level 2 within the fair value hierarchy
Both forward foreign exchange contracts and options are classified as level 2. Both of these instruments are traded on an active market.
Options are valued using an industry standard model with inputs based on observable market data whilst the fair value of forward foreign
exchange contracts may be established using interpolation of observable market data rather than from a quoted price.
Classes and fair value of financial instruments
It is the Directors’ opinion that the carrying value of all financial instruments approximates to their fair value.
107
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
22. Fair value measurement continued
Categories of financial instrument
At 31 March 2018
Trade and other receivables (excludes prepayments)
Money market instruments with maturities > 3 months
Cash and cash equivalents
Derivative financial assets at fair value through profit or loss
Trade payables
Accruals
Derivative financial liabilities at fair value through profit or loss
Total
At 31 March 2017
Trade and other receivables (excludes prepayments)
Money market instruments with maturities > 3 months
Cash and cash equivalents
Derivative financial assets at fair value through profit or loss
Trade payables
Accruals
Derivative financial liabilities at fair value through profit or loss
Note
14
16
16
15
17
17
15
Note
14
16
16
15
17
17
15
Financial
liabilities
Liabilities
at fair value
Loans and measured at through profit through profit
or loss
receivables amortised cost
£’000
£’000
Assets at
fair value
or loss
£’000
£’000
5,917
10,198
12,498
—
—
—
—
—
—
—
—
(325)
(2,067)
—
—
—
—
266
—
—
—
28,613
(2,392)
266
—
—
—
—
—
—
(29)
(29)
Financial
liabilities
Loans and measured at
receivables amortised cost
£’000
£’000
Assets at
fair value
through profit
or loss
£’000
Liabilities
at fair value
through profit
or loss
£’000
6,051
18,102
19,120
—
—
—
—
—
—
—
—
(418)
(2,189)
—
—
—
—
53
—
—
—
53
—
—
—
—
—
—
(48)
(48)
Total
43,273
(2,607)
23. Operating lease commitments
Leases in which substantially all the risks and rewards are retained by the lessor are classified as operating leases. Payments made under these
operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Benefits received as an incentive to sign a lease,
whatever form they may take, are credited to profit or loss on a straight-line basis over the lease term.
On 7 September 2016, the Group signed a new lease on premises at Second and Third Floors, Morgan House, Madeira Walk, Windsor, at an
annual commitment of £507,603 per annum, expiring 1 September 2022.
On 16 March 2016, the Group signed a three year lease on premises in New York City, at an average annual commitment of $125,840 per annum.
On 1 June 2017, the Group signed a five year lease on premises in Zürich, at an annual commitment of CHF 49,680 per annum.
The Group has considered the risks and rewards of ownership of the leased properties, and considers that they remain with the lessors.
Consequently, all property leases are recognised as operating leases.
At 31 March 2018 the Group had commitments under non-cancellable operating leases relating to land and buildings as set out below:
2018
£’000
637
1,866
—
2,503
2017
£’000
608
2,134
211
2,953
Not later than one year
Later than one year and not later than five years
Later than five years
Total
108
Record plc Annual Report 2018Financial statements
24. Cash flow from operating activities
Group
This note should be read in conjunction with the cash flow statements. It provides a reconciliation to show how operating profit, which is based on
accounting rules, translates to cash flows.
Operating profit
Adjustments for non-cash movements:
Profit on disposal of property, plant and equipment
Depreciation of property, plant and equipment
Amortisation of intangible assets
Net release of shares previously held by EBT
Share-based payments
Decrease in cash on deconsolidation of Record Currency – Emerging Market Currency Fund (see note 12)
Other non-cash movements
Changes in working capital
Decrease/(increase) in receivables
(Decrease)/increase in payables
(Increase)/decrease in other financial assets
Increase in other financial liabilities
Cash inflow from operating activities
Interest paid
Corporation taxes paid
Net cash inflow from operating activities
Company
Operating (loss)/profit
Adjustment for:
Loss/(gain) on investments
Other
Changes in working capital
Increase in payables
Cash inflow from operating activities
Corporation taxes paid
Net cash inflow from operating activities
2018
£’000
7,272
1
206
99
845
(93)
(4,062)
(270)
3,998
172
(371)
(204)
734
4,329
(10)
(1,573)
2,746
2018
£’000
(123)
7
116
1,082
1,082
(67)
1,015
Restated
2017
£’000
7,744
—
99
243
587
24
—
(146)
8,551
(1,268)
641
53
700
8,677
—
(1,570)
7,107
Restated
2017
£’000
330
(193)
(137)
—
—
—
—
109
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
25. Related parties transactions
Company
Details of transactions between the Company and other Group undertakings, which are related parties of the Company, are shown below:
Transactions with subsidiaries
The Company’s subsidiary undertakings are listed in note 12, which includes a description of the nature of their business.
Amounts due to subsidiaries
Net dividends received from subsidiaries
2018
£’000
(1,093)
16,810
2017
£’000
(11)
3,592
Amounts owed to and by related parties will be settled in cash. No guarantees have been given or received. No provisions for doubtful debts
have been raised against amounts outstanding (2017: £nil). No expense has been recognised during the year in respect of bad or doubtful
debts due from related parties.
Group
Transactions or balances between Group entities have been eliminated on consolidation and in accordance with IAS 24, are not disclosed in
this note.
Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Share-based payments
Total
The dividends paid to key management personnel in the year ended 31 March 2018 totalled £3,651,092 (2017: £1,915,103).
Directors’ remuneration
Emoluments (excluding pension contribution)
Pension contribution (including payments made in lieu of pension contributions)
Total
2018
£’000
4,965
185
1,172
6,322
2018
£’000
2,397
166
2,563
2017
£’000
4,651
184
1,387
6,222
2017
£’000
2,571
164
2,735
During the year, one Director of the Company (2017: one) participated in the Group Personal Pension Plan, a defined contribution scheme.
Transactions with seeded funds
From time to time, the Group injects capital into funds operated by the Group to trial new products (seed capital). If the Group is able to exercise
control over such a seeded fund by holding a majority interest (whether the majority interest is held by Record plc alone, or by combining the
interests of Record plc and its Directors), then the fund is considered to be a related party.
Record Currency – FTSE FRB10 Index Fund , Record Currency – Strategy Development Fund and Record – Currency Multi-Strategy Fund are
all related parties on this basis. Similarly, the Record Currency – Emerging Market Currency Fund was a related party until the divestment of two
Record plc Directors resulted in Record plc losing control over the entity as its combined holding in the fund when considered in aggregate with
its Directors no longer constituted a majority.
The only transaction between the Company and these funds during the year was the initial seed investment of £1,000,000 in the
Record – Currency Multi-Strategy Fund.
During the year, four Record plc Directors adjusted their seed investment in the funds, as set out below:
Trade date
Type
Value
Fund
26 Feb 2018 Subscription
GBP 500,000
Record – Currency Multi-Strategy Fund
22 Mar 2018 Redemption
CHF 1,055,850
Record Currency – Emerging Market Currency Fund
22 Mar 2018 Subscription
CHF 1,055,850
Record – Currency Multi-Strategy Fund
22 Mar 2018 Redemption
USD 836,199
Record Currency – Emerging Market Currency Fund
22 Mar 2018 Subscription
26 Feb 2018 Subscription
USD 836,199
GBP 100,000
Record – Currency Multi-Strategy Fund
Record – Currency Multi-Strategy Fund
Related party
Neil Record
Leslie Hill
Leslie Hill
Bob Noyen
Bob Noyen
Jane Tufnell
110
Record plc Annual Report 2018Financial statements
26. Capital management
The Group’s objectives when managing capital are (i) to safeguard the Group’s ability to continue as a going concern, (ii) to provide an adequate
return to shareholders, and (iii) to meet regulatory capital requirements set by the UK Financial Conduct Authority.
The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in light of
changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return capital to shareholders, or issue new shares. The Group had no debt in the
current or prior financial year and consequently does not calculate a debt-to-adjusted capital ratio.
The Group’s capital is managed within the categories set out below:
Regulatory capital
Other operating capital
Operating capital
Seed capital
Total capital
2018
£m
9.1
13.3
22.4
4.2
26.6
2017
£m
8.9
24.6
33.5
3.3
36.8
Operating capital is intended to cover the regulatory capital requirement plus capital required for day to day operational purposes and other
investment purposes. The Directors consider that the other operating capital significantly exceeds the actual day to day operational requirements.
Seed capital is the capital deployed to support the growth of new funds. Seed capital is limited to 25% (2017: 15%) of the Group’s total capital.
For regulatory capital purposes Record plc is subject to consolidated financial supervision by the Financial Conduct Authority (“FCA”). Our
regulatory capital requirements are in accordance with FCA rules and consistent with the Capital Requirements Directive. Our financial resources
have exceeded our financial resource requirements (regulatory capital requirements) at all times during the year. Further information is provided in
the Business Review.
27. Ultimate controlling party
As at 31 March 2018 the Company had no ultimate controlling party, nor at 31 March 2017.
28. Post reporting date events
No adjusting or significant non-adjusting events have occurred between the reporting date and the date of authorisation.
29. Restatement of previously published financial statements
The Directors have reviewed the basis of preparation of the Group’s consolidated financial statements, and have implemented the
following changes.
Classification of the external investment in the seed funds
External investment in the seed funds which are consolidated into the Group financial statements has previously been classified as a non-
controlling interest as the investment was considered to be an equity instrument. The Directors have reviewed this treatment and now recognise
the external investment as a financial liability. This change in approach has a material change to the statement of financial position affecting both
current liabilities and equity. The adjustment also affects the statement of comprehensive income as the pro-rata share of the gains or losses
derived from the seed funds which are attributable to the external investors in the funds are not included within operating profit as opposed to
being included in profit attributable to the non-controlling interest.
Presentation of other income
Management has reviewed the nature of items included in revenue in accordance with the definitions provided in IAS 1 and IAS 18. Following the
review, management has decided that a re-presentation of certain elements would improve the clarity of the financial statements.
Consequently, the presentation of gains or losses on hedging, gains or losses on trading within the seed funds and gains or losses on foreign
exchange conversion which were previously included within revenue as “other income” are now presented separately on the face of the statement
of comprehensive income as “other income or expense”.
A reconciliation of primary statements previously reported to restated primary statements is provided on pages 112 to 115.
The effect of both changes in future periods is not disclosed as it is not practicable to do so.
The changes described above have had no impact on the profit attributable to owners of the parent nor on the earnings per share.
The restated operating profit and profit before tax for the comparative period is equivalent to the underlying operating profit and underlying profit
before tax disclosed in previous reports.
111
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
29. Restatement of previously published financial statements continued
Reconciliation of consolidated statement of comprehensive income under historic interpretation to new interpretation
Historic presentation
Revenue
Gross profit
Other income or expense
Consisting of:
Gains or losses on derivative financial instruments and foreign exchange conversion
Adjustment for gain or loss attributable to external investors in the seed fund
Operating profit
Profit before tax
Profit after tax and total comprehensive income for the period
Profit and total comprehensive income for the period attributable to:
Non-controlling interests
New presentation
Revenue
Gross profit
Other income or expense
Consisting of:
Gains or losses on derivative financial instruments and foreign exchange conversion
Adjustment for gain or loss attributable to external investors in the seed fund
Operating profit
Profit before tax
Profit after tax and total comprehensive income for the period
Profit and total comprehensive income for the period attributable to:
Non-controlling interests
Differences
Revenue
Gross profit
Other income or expense
Consisting of:
Gains or losses on derivative financial instruments and foreign exchange conversion
Adjustment for gain or loss attributable to external investors in the seed fund
Operating profit
Profit before tax
Profit after tax and total comprehensive income for the period
Profit and total comprehensive income for the period attributable to:
Non-controlling interests
Year ended
31 March 18
£’000
Year ended
31 March 17
£’000
23,639
23,328
n/a
n/a
n/a
6,904
6,960
5,778
23,928
23,630
n/a
n/a
n/a
8,563
8,675
7,135
(368)
819
23,834
23,523
173
22,952
22,654
175
(195)
368
7,272
7,328
6,146
976
(819)
7,744
7,856
6,316
—
—
195
195
173
(195)
368
368
368
368
(976)
(976)
175
976
(819)
(819)
(819)
(819)
368
(819)
The presentation of gains or losses on hedging, gains or losses on trading within the seed funds and gains or losses on foreign exchange
conversion have been re-presented from within revenue to other income or expense on the face of the statement of comprehensive income.
The pro-rata share of the gains or losses derived from the seed funds which are attributable to the external investors in the funds are not
included within operating profit as opposed to previously being included in profit and disclosed as the profit after tax attributable to the
non-controlling interest.
112
Record plc Annual Report 2018Financial statements
Reconciliation of consolidated statement of financial position under historic interpretation to new interpretation
Historic presentation
Financial liabilities
Total current liabilities
Total net assets
Non-controlling interests
Total equity
New presentation
Financial liabilities
Total current liabilities
Total net assets
Non-controlling interests
Total equity
Differences
Financial liabilities
Total current liabilities
Total net assets
Non-controlling interests
Total equity
As at
31 March 18
£’000
As at
31 March 17
£’000
n/a
n/a
(3,058)
(3,865)
29,018
2,467
29,018
41,610
4,779
41,610
(2,467)
(5,525)
(4,779)
(8,644)
26,551
36,831
—
—
26,551
36,831
(2,467)
(2,467)
(2,467)
(2,467)
(2,467)
(4,779)
(4,779)
(4,779)
(4,779)
(4,779)
The net asset value of the investment of external investors in the seed fund has been reclassified from a non-controlling interest in equity, to a
financial liability. There is no other non-controlling interest.
113
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the year ended 31 March 2018
29. Restatement of previously published financial statements continued
Reconciliation of consolidated statement of changes in equity under historic interpretation to new interpretation
The statement of changes in equity is shown below as it would appear under the historic presentation.
In the revised format there is no non-controlling interest, and therefore no changes in non-controlling interest. As a consequence total equity
becomes equivalent to the total equity attributable to owners of the parent.
As at 1 April 2016
Profit and total comprehensive
income for the period
Dividends paid
Own shares acquired by EBT
Release of shares held by EBT
Issue of units in funds
Share-based payments
Transactions with shareholders
As at 31 March 2017
Profit and total comprehensive
income for the period
Dividends paid
Share buy-back
Own shares acquired by EBT
Release of shares held by EBT
Issue of units in funds
Divestment of non-controlling interest
Share-based payments
Transactions with shareholders
As at 31 March 2018
Called up
share
capital
£’000
55
—
—
—
—
—
—
—
55
—
—
(5)
—
—
—
—
—
(5)
50
Share
premium
account
£’000
1,899
—
—
—
72
—
—
72
1,971
—
—
—
—
266
—
—
—
266
2,237
Capital
redemption
reserve
£’000
20
—
—
—
—
—
—
—
20
—
—
6
—
—
—
—
—
6
26
Total
attributable to
Retained equity holders Non-controlling
interests
earnings
£’000
£’000
of the parent
£’000
Total
equity
£’000
31,715
33,689
4,019
37,708
6,316
(3,592)
(775)
992
—
129
6,316
(3,592)
(775)
1,064
—
129
(3,246)
(3,174)
819
—
—
—
(59)
—
(59)
7,135
(3,592)
(775)
1,064
(59)
129
(3,233)
34,785
36,831
4,779
41,610
6,146
(6,810)
(10,000)
(952)
1,241
—
—
6,146
(6,810)
(9,999)
(952)
1,507
—
—
(368)
—
—
—
—
959
5,778
(6,810)
(9,999)
(952)
1,507
959
(2,903)
(2,903)
(172)
(172)
—
(172)
(16,693)
(16,426)
(1,944)
(18,370)
24,238
26,551
2,467
29,018
114
Record plc Annual Report 2018Financial statements
Reconciliation of consolidated statement of cash flows under historic interpretation to new interpretation
Historic presentation
Operating profit
Changes in working capital:
Increase/(decrease) in other financial liabilities
Cash inflow from operating activities
Net cash inflow from operating activities
Cash flow from financing activities:
Cash inflow/(outflow) from issue/(redemption) of units in funds
Cash outflow from financing activities
New presentation
Operating profit
Changes in working capital:
Increase in other financial liabilities
Cash inflow from operating activities
Net cash inflow from operating activities
Cash flow from financing activities:
Cash flow from issue/redemption of units in funds
Cash outflow from financing activities
Differences
Operating profit
Changes in working capital:
Movement in other financial liabilities
Cash flow from operating activities
Net cash flow from operating activities after tax
Cash flow from financing activities:
Cash flow from issue/redemption of units in funds
Cash flow from financing activities
Year ended
31 March 18
£’000
Year ended
31 March 17
£’000
6,904
8,563
143
3,370
1,787
(60)
8,736
7,166
959
(59)
(16,218)
(3,844)
7,272
7,744
734
4,329
2,746
700
8,677
7,107
n/a
n/a
(17,177)
(3,785)
368
(819)
591
959
959
(959)
(959)
760
(59)
(59)
59
59
As the external investment in the fund is no longer considered to be equity, the cash flow arising on issue or redemption of shares is not included
as a financing activity but as a movement in other financial liabilities. The adjustment to operating profit in the revised presentation which relates to
the pro-rata share of the gains or losses derived from the seed funds which are attributable to the external investors in the funds has an equal and
opposite effect on the movement in other financial liabilities.
There is no change to cash or cash equivalents at the period end.
115
Record plc Annual Report 2018Strategic reportGovernanceFinancial statementsAdditional information
FIVE YEAR SUMMARY
Year ended 31 March
Management fees
Performance fees
Other revenue
Revenue
Cost of sales
Gross profit
Operating expenses
Other income/(expenditure)
Operating profit
Net interest
Profit before taxation
Taxation
Profit after taxation
Basic EPS (pence)
Ordinary dividend (pence)
Special dividend (pence)
Restated
Audited
2014
£’000
2015
£’000
2016
£’000
2017
£’000
2018
£’000
20,271
20,255
20,941
22,718
23,497
—
57
480
70
315
163
—
234
—
337
20,328
20,805
21,419
22,952
23,834
(86)
(148)
(221)
(298)
(311)
20,242
20,657
21,198
22,654
23,523
(13,412)
(13,373)
(14,123)
(15,067)
(16,424)
(42)
6,788
113
6,901
(1,494)
5,407
2.48
1.50
—
60
7,344
146
7,490
(1,708)
5,782
2.66
1.65
—
(154)
6,921
143
7,064
(1,523)
5,541
2.55
1.65
—
157
7,744
112
7,856
(1,540)
6,316
2.91
2.00
0.91
173
7,272
56
7,328
(1,182)
6,146
3.03
2.30
0.50
INFORMATION FOR SHAREHOLDERS
Record plc
Record plc is a public limited company
incorporated in the UK.
Registered in England and Wales
Company No. 1927640
Registered office
Morgan House
Madeira Walk
Windsor
Berkshire
SL4 1EP
United Kingdom
Tel: +44 (0)1753 852 222
Fax: +44 (0)1753 852 224
Principal UK trading subsidiaries
Record Currency Management Limited
Registered in England and Wales
Company No. 1710736
Record Group Services Limited
Registered in England and Wales
Company No. 1927639
Both principal UK trading subsidiaries are
based in Windsor.
Further information on Record plc
can be found on the Group’s website:
www.recordcm.com
Dates for 2018 dividend
Ex-dividend date
Record date
28 June 2018
29 June 2018
Annual General Meeting
26 July 2018
Final dividend payment date 1 August 2018
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Further information about the
Registrar is available on their website
www.linkassetservices.com
116
Record plc Annual Report 2018Additional information
DEFINITIONS
“Admission”
“AIFMD”
“Articles”
“AUME”
“Board”
“bps”
“Companies Act”
“Company”
“$” or “dollars”
“EBT”
“EPS”
“ETF”
“EU”
“FRB”
Admission to the Official List and to trading on the London Stock Exchange’s Main Market
for listed securities
Alternative Investment Fund Manager Directive
The Articles of Association of the Company
Assets under management equivalents
Company’s Board of Directors
Basis point = 100th of a per cent
Every statute (including any orders, regulations or other subordinate legislation made under it)
from time to time in force concerning companies in so far as it applies to the Company
Record plc
All references to dollars or $ symbol are to the currency of the US unless stated otherwise
Employee Benefit Trust
Earnings per share
Exchange traded fund
European Union
Forward Rate Bias
“Group” or “Record”
The Company and/or any one of its subsidiary undertakings
“IAS”
International Accounting Standards
“IFRS” or “IFRSs”
International Financial Reporting Standards
“IPO”
“KPI”
“KRI”
“LGPS”
Initial Public Offering
Key Performance Indicator
Key Risk Indicator
Local Government Pension Schemes
“London Stock Exchange”
London Stock Exchange plc
“MiFID”
“Official List”
“TIPS”
“US”
Markets in Financial Instruments Directive
The official list of the Financial Conduct Authority
US government treasury inflation protected securities
United States of America
AUME definition
The basis for measuring AUME differs for each product and is detailed below:
• Dynamic Hedging mandates – total amount of clients’ investment portfolios denominated in liquid foreign currencies, and hence
capable (under the terms of the relevant mandate) of being hedged;
• Passive Hedging mandates – the aggregate nominal amount of passive hedges actually outstanding in respect of each client;
• Currency for Return mandates – the maximum aggregate nominal amount of outstanding forward contracts for each client;
• Multi‑product mandates – the chargeable mandate size for each client;
• Cash – the total set aside by clients and managed and/or “equitised” using futures by Record.
The paper used in this report is produced using virgin wood fibre from well‑managed forests with FSC© certification.
All pulps used are elemental chlorine free and manufactured at a mill that has been awarded the ISO 14001 and
EMAS certificates for environmental management. The use of the FSC© logo identifies products which contain
wood from well‑managed forests certified in accordance with the rules of the Forest Stewardship Council.
Printed by an FSC© and ISO 14001 accredited company.
Designed and produced by
www.lyonsbennett.com
R
e
c
o
r
d
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
Record plc
Morgan House
Madeira Walk
Windsor
Berkshire SL4 1EP
T: +44 (0)1753 852 222
marketing@recordcm.com
www.recordcm.com
recordcm.com