Record
Annual Report 2019

Plain-text annual report

R e c o r d p l c A n n u a l R e p o r t 2 0 1 9 Intelligent currency management Record plc Annual Report 2019 Strategic report WHERE WE OPERATE The Group’s main geographical markets as determined by the location of clients to whom services are provided, are the UK, North America and Continental Europe, in particular Switzerland. The Group also has clients elsewhere, including Australia. 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. Head office Windsor Sales office New York Sales office Switzerland AUME 75% AUME 12% AUME 11% AUME 2% Europe (excluding UK) United Kingdom North America Rest of World IFC Strategic report WHERE WE OPERATE UK $6.7bn AUME Head office: Windsor North America $6.2bn AUME Sales office: New York Continental Europe $43.1bn AUME Sales office: Zürich, Switzerland Rest of World $1.3bn AUME Regions Our clients are located in: • Australia • Canada • Cayman Islands • Channel Islands • Finland • Germany • Ireland • Luxembourg • Netherlands • Portugal • Singapore • Sweden • Switzerland • United Kingdom • United States Visit us online www.recordcm.com CONTENTS STRATEGIC REPORT PAGES IFC TO 35 Where we operate About us Highlights 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 GOVERNANCE PAGES 36 TO 69 Chairman’s introduction Board of Directors Corporate governance report Nomination Committee report Audit and Risk Committee report Remuneration report Directors’ report Directors’ responsibilities statement FINANCIAL STATEMENTS PAGES 70 TO 110 Independent auditor’s report Financial statements Notes to the financial statements ADDITIONAL INFORMATION PAGES 111 TO IBC Five year summary Definitions Information for shareholders WHERE WE OPERATE IFC 1 3 4 6 8 12 14 20 20 22 26 30 34 37 38 40 46 49 53 66 69 71 76 83 111 112 IBC ABOUT US Record is an independent currency manager with more than 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. Our head office is in Windsor, in the UK, and has been since our formation in 1983. Record has always been an independent currency specialist, and has 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 has a premium listing on the Main Market of the London Stock Exchange, and is majority‑owned by its Directors and employees. Core values Diligence Transparency Accountability Probity A client-focused approach A culture of integrity • Building strong, long‑term “trusted adviser” relationships with our clients • Understanding clients’ currency issues fully • Developing robust and effective solutions, tailored for our clients’ currency requirements • Independent specialist currency manager • No proprietary business • Strong focus on risk management Strengths developed through 36 years of experience • Fundamental understanding of how currency markets operate • Leading position in managing currency for institutional clients • Collaborative approach between distribution, investment, operational and support functions built into infrastructure to deliver responsive client service 1 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationRecord plc Annual Report 2019 Specialists in currency management Key fact The Group, founded over 35 years ago, has a leading position in managing currency for institutional clients. 2 Strategic report HIGHLIGHTS Record plc Annual Report 2019 Assets Under Management Equivalents1 (“AUME”) Earnings per share $57.3bn 2018: $62.2bn -8% 3.27p 2018: 3.03p +8% Revenue Ordinary dividend per share £25.0m 2018: £23.8m +5% Profit before tax £8.0m 2018: £7.3m +9% 2.30p 2018: 2.30p +0% Special dividend per share 0.69p 2018: 0.50p +38% 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 details of how Record calculates AUME are included on page 112. 3 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 We have continued to see political and economic uncertainty affecting the financial markets and by extension the asset management industry and the currency markets in which we operate. Technology continues to disrupt the fundamental ways in which financial markets operate. It brings challenges, in terms of competition and pressure on margins, as well as opportunities in terms of improvements to operational efficiency and price transparency, and to the overall client experience. During the year, we have continued to focus on, and invest in our client relationships, our ability to innovate, our technology and our people. My statement last year highlighted the change in mix of fees for some products, which includes some enhanced Passive Hedging mandates and some return‑seeking (Multi‑Strategy) mandates, from management fee only to a reduced management fee plus a performance fee element. During the year this has achieved outperformance in terms of total fees earned when compared to the fees that would have been earned on a management fee only basis. Notwithstanding net outflows of $4.5 billion, predominantly in the second half of the year, Record generated strong results with revenues of £25.0 million (2018: £23.8 million), operating profit of £7.9 million (2018: £7.3 million) and earnings per share of 3.27 pence (2018: 3.03 pence). Further information on AUME flows and financial results can be found on pages 23 to 29. Group strategy We believe that by delivering market‑leading and innovative products and the highest levels of service to our clients, we will generate positive returns and create shareholder value over the long term. Our strategy focuses on three core areas for delivery: our client experience, innovation and talent development. Further detail on the strategic objectives and how we performed against these can be found under “Strategy and Objectives” on pages 8 to 13. CHAIRMAN’S STATEMENT The environment in which Record operates challenges us to continue to enhance existing products and services, and also to innovate new ones. Record has the people and resources to do so. Neil Record Chairman 4 Record plc Annual Report 2019Strategic reportCapital and dividend Our capital policy 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. Our dividend policy targets a level of dividend which is at least covered by earnings and which allows for sustainable dividend growth in line with the trend in profitability. It is also the Board’s intention, subject to financial performance and market conditions at the time, to return excess earnings over ordinary dividends for the financial year and adjusted for changes in capital requirements, to shareholders, normally in the form of special dividends. The Board is recommending a final ordinary dividend of 1.15 pence per share (2018: 1.15 pence), with the full year ordinary dividend at 2.30 pence, which is equivalent to the full year ordinary dividend in respect of the prior year (2018: 2.30 pence). The interim dividend of 1.15 pence per share was paid on 22 December 2018, and the final ordinary dividend of 1.15 pence per share will be paid on 31 July 2019 to shareholders on the register at 28 June 2019, subject to shareholders’ approval. The Group has assessed its regulatory capital requirement alongside its anticipated costs for the current financial year, which has resulted in a marginal increase to capital required in line with its policy. The net increase in capital required is equivalent to 0.28  pence per share and consequently the Board is announcing a special dividend of 0.69 pence per share to be paid simultaneously with the final ordinary dividend. Total dividends for the year are 2.99 pence per share (2018: 2.80 pence) compared to earnings per share of 3.27 pence per share (2018: 3.03 pence). 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 David Morrison, the Senior Independent Director, resigned from the Board with effect from 30 September 2018 having served his full nine‑year term and hence no longer being deemed independent. On behalf of my colleagues I would like to thank David for his commitment and guidance to Record over his term, and to wish him well for the future. With effect from 1 October 2018, Jane Tufnell was appointed Senior Independent Director and continues to chair the Nomination Committee, and Tim Edwards was appointed as Chair of the Remuneration Committee. The Audit and Risk Committee continues to be chaired by Rosemary Hilary. Outlook Financial markets, and by extension the foreign exchange markets, will continue to be subject to ongoing disruption in such various forms as political instability, trade tensions, regulatory changes, technological disruption and more fundamentally changes in the way our markets operate. Whilst such an environment brings a high degree of challenge, it also provides opportunities to those market participants having the capability and flexibility to react, including the ability to innovate and to invest in order to meet the specific demands of clients and potential clients. We have already shown that we have the people and resources to meet these challenges head on, and I remain confident that we will continue to do so going forward. On behalf of the Board, I would like to thank everyone at Record for their hard work and commitment during the year, and I look forward to the challenges and further opportunities in the year ahead. Neil Record Chairman 12 June 2019 5 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationIn the year ended 31 March 2019, anticipated reductions in management fees were more than offset by performance fees, resulting in 5% growth in revenue. Some benefits of operating leverage brought about a modest increase in operating margin to 32%. Looking forward, Record’s management is determined to impose continued cost discipline, so that investment in new products and services can be maintained without sacrificing profitability. We are increasingly focused on being flexible and responsive to client demand in developing these new products and strategies. Market overview The year to 31 March 2019 saw a moderation of economic activity in developed market economies with the exception of the US. With this came diminished expectations for divergence in interest rate cycles. Political risks re‑emerged during the year with the UK approaching its EU exit date, the US and China trade dispute, and renewed hostilities between the Italian government and EU officials. Emerging Market currencies came under pressure temporarily, but the Turkish lira experienced more severe currency depreciation during the summer. Further information on foreign exchange markets over the period is provided on pages 20 and 21. Investment performance Record’s Dynamic Hedging product increased hedge ratios in line with US dollar strength, and helped protect clients against currency losses. Over the year, Record’s enhanced Passive Hedging service outperformed its relevant benchmark for most clients, though the magnitude of outperformance was lower than the long‑term average. Record’s Multi‑Strategy mandates combining Carry, Emerging Market, Momentum, Value and now Range Trading strategies delivered negative performance over the period. Further detail on our product range is provided on pages 16 and 17, and product performance data is provided on pages 22 and 23. Asset flows and financial performance AUME decreased by 8% in US dollar terms over the financial year to $57.3 billion, and decreased by 1% in sterling terms to £44.0 billion. Net outflows of $4.5 billion in the year were largely driven by Passive Hedging outflows of $4.6 billion, with net inflows in Currency for Return balanced by net outflows in Dynamic Hedging. Detailed analysis of AUME is provided on pages 23 to 25. The 5% total decline in management fees of £1.2 million was more than offset by performance fees of £2.3 million, resulting in an increase in revenue of 5% to £25.0 million. The Group’s operating margin improved from 31% to 32%, and profit before tax increased by 9% to £8.0 million. Basic earnings per share of 3.27 pence represented an 8% increase on the prior financial year. The Financial review on pages 26 to 29 gives additional commentary. CHIEF EXECUTIVE OFFICER’S STATEMENT We are increasingly focused on being flexible and responsive to client demand in developing new products and strategies. James Wood-Collins Chief Executive Officer 6 Record plc Annual Report 2019Strategic reportOutlook Record’s Board and management firmly believe that almost all investors worldwide are affected by currency market movements, and that the unparalleled liquidity of the foreign exchange market means that capacity and liquidity constraints are remote. Furthermore, our depth of experience and robust operating model means we are very well positioned to design and implement solutions to investors’ specific needs, whether risk management, return‑seeking, or both. This combination of investor relevance, market depth and expertise should mean that Record is well positioned to generate significant growth for shareholders. The Board and management recognise that while long‑established products and services are key to Record’s profitability today, we cannot rely on these alone to take full advantage of our growth opportunities. This, as well as fee pressure endemic to investment management, lies behind our focus on continually enhancing our clients’ experience and innovating new products and strategies. Achieving both of these is in turn dependent on attracting and retaining highly‑capable colleagues. It also continues to be imperative that we manage the business in a financially‑disciplined fashion, both with regard to expenditure and balance sheet discipline. We will continue to invest in opportunities that respond to client demand, and to challenge ourselves and our colleagues to identify and pursue these opportunities, while also seeking productivity enhancements in established products. James Wood-Collins Chief Executive Officer 12 June 2019 Strategic progress Our strategic progress can be grouped under three headings, as set out on page 8. Quality client experience – our commitment to deliver best‑in‑class client experience is manifested through building and maintaining close “trusted adviser” relationships, and continually enhancing the products and services we offer these clients to meet their needs. Continual enhancement of products and services is demonstrated through the increased adoption of enhanced Passive Hedging amongst our clients, and by the addition of a fifth strand, Range Trading, to our Multi‑Strategy product. The extension of our relationship with WisdomTree to include a framework for hedging emerging market currencies is a further example of this. Our ability to build and maintain client relationships is critically dependent on the individuals whose responsibility this is, and to this end we are pleased to have increased the employees based in our New York office covering North America, with two transfers from Windsor and one local hire. Innovation – innovation is demonstrated both in enhancing existing products and services, and in developing new ones. Given the bespoke nature of all of Record’s segregated mandates, the distinction between enhancing existing services and developing new ones is blurred. In addition to the continued adoption of enhanced Passive Hedging and the addition of Range Trading, we have developed and seeded a strategy which incorporates Environmental, Social and Governance (“ESG”) factors into the Multi‑Strategy currency portfolio. Our approach of encouraging innovative ideas from colleagues may lead to opportunities which are best exploited outside of Record’s full ownership and control. One example spanning the financial year end is Record’s investment in a 40% shareholding in Trade Record Ltd, a newly‑formed company established to offer pay‑to‑enter competitions in which subscribers trade virtual money across asset classes. Talent development – we have continued to pay close attention to attracting, recruiting, retaining and developing high potential talent across our business. We have insourced much of our recruitment activity, with the twin objectives of identifying better candidates earlier, and reducing costs. We will be changing how we implement our Group Profit Share scheme for the year ended 31 March 2020 so as to better balance rewarding individual contribution as well as firm‑wide performance, as described in more detail on page 53. As a result there may be more variability in the current and future financial periods in the total cost of the Group Profit Share scheme within the established range of 25% to 35% of operating profits. 7 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationSTRATEGY AND OBJECTIVES Strategic goals We are a specialist currency manager 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. Strategic objectives • To build strong, long‑term “trusted adviser” relationships with our clients • To devise and implement new products and strategies • To enhance existing products and strategies • To operate a robust, scalable and profitable business model • To attract, develop and retain a diverse pool of high‑quality people Strategy The presentation of Record’s strategy section has been updated significantly in this report. In last year’s report, the Group presented its strategic goals, and then discussed objectives and progress in six strategic areas. Whilst the Group’s strategy has not changed, it now presents the same goals and objectives, but discusses its progress within three strategic areas, in order to articulate its strategy more clearly. Performance measurement We use both financial and non‑financial key performance indicators (“KPIs”) to monitor the performance of the Group. KPIs which link to a specific strategic area are presented on pages 9 to 11, and those which relate to Record’s overarching strategic goals and objectives are presented on pages 12 to 13. The three key strategic areas are outlined below, whilst further detail on the associated risks is provided on pages 30 to 33. Quality client experience page 9 We provide the highest levels of service to our clients through proactive relationships, informing clients on currency markets and opportunities, seeking to understand their currency issues and tailoring our products to meet their individual requirements. Risks: People and employment, regulatory change, investment and operational Measured by – client numbers, AUME, revenue and client longevity Innovation page 10 We differentiate Record from our competitors and reinforce our thought leadership through devising and implementing innovative solutions to meet unique client requirements. Measured by – number of strategies and products Risks: People and employment, regulatory strategy and operational We aim to develop and retain a diverse pool of talent which is key to delivery of a “best in class” business model and to the long-term stability of the business. Measured by – employee numbers, employee retention, employee participation in equity Risks: Strategic, people and employment, investment and operational Talent development page 11 1 2 3 8 Record plc Annual Report 2019Strategic report1 Quality client experience We provide the highest levels of service to our clients through proactive relationships informing clients about currency markets and opportunities, seeking to understand their currency issues and tailoring our products to meet their individual requirements. Initiatives Progress Priorities • Improve local presence in key markets outside of the UK. • Focus on opportunities for existing clients to benefit from product enhancements and complementary services alongside current product range. • Expansion of US local presence by addition of experienced local hire, and transfers from head office in the UK. • Continue to invest in processes and resources to improve the service to clients and the overall client experience. • Transfer of some Passive Hedging clients across to more bespoke enhanced Passive Hedging mandates. • Extending licensing agreement with • Review opportunities for enhancing best WisdomTree. execution delivery for clients. • New Change FX appointed to provide independent data and enhance best execution and price transparency. Clients AUME Client numbers AUME ($ billion) Revenue Revenue (£m) Client longevity Client longevity (%) FY-19 FY-18 FY-17 FY-16 FY-15 65 FY-19 60 FY-18 59 FY-17 58 FY-16 55 FY-15 57.3 FY-19 62.2 FY-18 58.2 FY-17 52.9 FY-16 54.7 FY-15 25.0 0-1yrs 23.8 1-3yrs 23.0 3-6yrs 21.4 6-10yrs 20.8 >10yrs 20 22 18 18 22 Client numbers represent the number of separate legal entities that have appointed Record directly as an investment manager or invested in a Record fund. 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. Revenue is earned mainly from the provision of currency management services in the form of management fees and performance fees. Client longevity measures how long Record has been providing currency management services to each client with a mandate active at 31 March 2019. 9 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationSTRATEGY AND OBJECTIVES CONTINUED 2 Innovation We differentiate Record from our competitors and reinforce our thought leadership through devising and implementing innovative solutions to meet unique client requirements. We constantly review our operational model to identify opportunities for process improvement and risk reduction. Initiatives Progress Priorities • • Investigate opportunities for improving diversification and performance in Multi‑Strategy products. Investigate opportunities for incorporating ESG factors into currency‑related investment strategies. • Diversify Record’s products and services through investment in new and innovative ideas. • New Range Trading strand developed and added to Multi‑Strategy product. • Developed and seeded new Multi‑Strategy factor incorporating ESG tilt. • Co‑investment into new start‑up company (Trade Record Ltd) offering a diversified business opportunity. • Identify more opportunities for incorporating technological solutions to streamline business processes. • Continued investment in research to enhance existing products and services and to identify new product opportunities. Product development timeline Company founded by Neil Record Dynamic Hedging started Currency Alpha product launched Carry (Forward Rate Bias) Strategy launched Signal Hedging launched 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Passive Hedging started EM Strategy launched Currency Multi- Strategy launched Currency Range Trading added to Multi-Strategy ESG-tilted Multi- Strategy seeded 10 Record plc Annual Report 2019Strategic report3 Talent development We aim to develop and retain a diverse pool of talent which is key to delivery of a “best in class” business model and to the long‑term stability of our business. Initiatives Progress Priorities • Providing a collaborative office • environment which enables early‑career employees to benefit from working alongside senior colleagues. Investment in technology to enhance communication channels between Group entities and retain close working links with colleagues based in non‑UK offices. • To continue to invest in the development, retention, wellbeing and diversity of our talented employees. • Increasing our pool of high potential, early to mid‑career colleagues to develop within Record’s business as part of succession planning. • Investing in improving the physical and mental wellbeing of our colleagues. • Promoting innovation through alignment with variable remuneration. • Graduate and early to mid‑stage career recruitment all brought in‑house, enabling more efficient processes and strengthening ties with several leading universities in the UK and Switzerland. • Invested in third party employee survey to measure employee satisfaction and identify areas for improvement. • Enhancement of employee wellbeing through introduction of professional assistance with mental health issues. • Changes to the implementation of the Group Profit Share scheme to encourage and recognise the importance of individual contribution and ideas. Average number of employees Staff retention The average number of employees through the year includes non‑executive directors. Staff retention is the number of employees who were employed by Record throughout the period as a percentage of the number of employees at the beginning of the period. Employees with equity interest The percentage of employees who own shares in Record plc at year end. Average number of employees Staff retention (%) Employees with equity interest (%) FY-19 FY-18 FY-17 FY-16 FY-15 85 FY-19 81 FY-18 73 FY-17 69 FY-16 68 FY-15 84 FY-19 93 FY-18 83 FY-17 88 FY-16 89 FY-15 70 72 68 69 76 11 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationKEY PERFORMANCE INDICATORS Measuring our performance against our strategy. The Board and Executive Committee use both financial and non-financial key performance indicators (“KPIs”) to monitor the performance of the Group. KPIs which link to a specific strategy are presented on pages 9 to 11, and those which relate to Record’s over-arching strategic goals and objectives are presented below. Indicator: Average management fee rates The Group aims to provide a premium level of service and expertise in exchange for a fair level of remuneration. How we performed this year: Performance history: • Fee rates across the product range were broadly maintained for hedging products. However, fee rates achieved for return‑seeking products fell during the year. Further information on fee rates can be found in the Financial review section on page 27. Operating profit margin Operating profit margin is an alternative performance measure, calculated by dividing operating profit by revenue. The Group aims to increase operating profit margin over the long term through investing in resources to maintain its premium products and services whilst building profitable and diversified revenue streams. • Operating profit margin increased to 32% for the year. Further information can be found under the Financial review Operating profit margin (%) section on page 28. Basic earnings per share (“EPS”) The Group’s objective is to create shareholder value over the long term, reflected in consistent growth in EPS. • Basic EPS increased by 8% for the year in line with increases in revenues and operating profit. EPS (pence per share) Dividends per share The Group’s objective is to pay a progressive ordinary dividend and return surplus capital to shareholders in the form of special dividends. • The ordinary dividend per share is unchanged on last year. The special dividend per share has increased by 0.19 pence resulting in a 7% increase in total dividends to 2.99 pence per share (2018: 2.80 pence per share). Dividends per share (pence) FY-19 FY-18 FY-17 FY-16 FY-15 FY-19 FY-18 FY-17 FY-16 FY-15 FY-19 FY-18 FY-17 FY-16 FY-15 32 31 34 32 35 3.27 3.03 2.91 2.55 2.66 2.30 2.30 2.00 1.65 1.65 0.69 0.50 0.91 Ordinary Special 12 Record plc Annual Report 2019Strategic reportIndicator: of remuneration. Average management fee rates The Group aims to provide a premium level of service and expertise in exchange for a fair level How we performed this year: Performance history: • Fee rates across the product range were broadly maintained for hedging products. However, fee rates achieved for return‑seeking products fell during the year. Further information on fee rates can be found in the Financial review section on page 27. Operating profit margin Operating profit margin is an alternative performance measure, calculated by dividing operating profit by revenue. The Group aims to increase operating profit margin over the long term through investing in resources to maintain its premium products and services 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. • Operating profit margin increased to 32% for the year. Further information can be found under the Financial review section on page 28. Operating profit margin (%) FY-19 FY-18 FY-17 FY-16 FY-15 • Basic EPS increased by 8% for the year in line with increases in revenues and operating profit. EPS (pence per share) Dividends per share The Group’s objective is to pay a progressive ordinary dividend and return surplus capital to shareholders in the form of special dividends. • The ordinary dividend per share is unchanged on last year. The special dividend per share has increased by 0.19 pence resulting in a 7% increase in total dividends to 2.99 pence per share (2018: 2.80 pence per share). FY-19 FY-18 FY-17 FY-16 FY-15 Dividends per share (pence) FY-19 FY-18 FY-17 FY-16 FY-15 2.30 2.30 2.00 1.65 1.65 32 31 34 32 35 3.27 3.03 2.91 2.55 2.66 0.69 0.50 0.91 Ordinary Special 13 Record plc Annual Report 2019Strategic 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 over 35 years’ experience – we have a fundamental understanding of how currency markets operate, which we have 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 Research Experience and know how Innovation Bespoke We seek to identify and understand persistent patterns that exist within currency markets. These patterns are rooted in macroeconomic cycles, global risk management activity, as well as structural and behavioural features of investment activity. By understanding these patterns whether they be market inefficiencies or risk premia, we can develop both risk mitigation and value‑adding strategies. We develop robust systematic processes, with macro‑ and market‑informed portfolio positioning and intelligent risk management oversight, which offer the best chance to achieve investor objectives once implemented within our rigorous operational environment. We continually test the underlying assumptions that support our investment beliefs and practices. This constant cycle of challenging and reviewing our investment philosophies drives product enhancement and new product development. 14 Record plc Annual Report 2019Strategic reportWhat we do What we deliver 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. 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. 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. Our products 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. Find out more about our products on pages 16 and 17. 15 Record plc Annual Report 2019Strategic 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 AUME $51.3bn 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. Currency for Return AUME $2.7bn Record’s Currency for Return strategies have the generation of investment return as their principal objective. The range includes five principal strategies being Carry, Emerging Market, Momentum, Value and Range Trading 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. Passive Hedging: AUME $48.2bn 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 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: 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 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. 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 been a significant contributor of returns to (developed market) holders of EM assets including equities and bonds. 16 Record plc Annual Report 2019Strategic reportWe also offer bespoke solutions tailored to individual client requirements. Dynamic Hedging: AUME $3.1bn Value is generated entirely through the asymmetric reduction of pre‑existing currency risk and Dynamic Hedging’s ability to outperform Passive Hedging is dependent on trending in currency markets. 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 sources of return in the currency market. 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 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. Range Trading The tendency for certain currency pairs to trade within narrow ranges is exploited by our Range Trading strategy. Multi-product AUME $3.0bn 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. Cash and other AUME $0.3bn Record also provides ancillary services including cash and liquidity management, collateral management and derivatives overlays. 17 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationBUSINESS MODEL CONTINUED 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. Other products Record has a licensing agreement with WisdomTree, the New York‑headquartered exchange‑traded fund and exchange‑ traded product sponsor and asset manager. Under the licensing agreement, Record provides signals that are used to dynamically hedge currency exposures within WisdomTree’s rules‑based index family. During the year, we extended our relationship under licence with WisdomTree to provide currency signals for use in connection with a new range of models‑based active exchange‑traded funds, which include Record’s first framework for hedging emerging market currencies. We are optimistic that our relationship with WisdomTree will allow both dynamic and emerging market 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 included under the licences held by WisdomTree, assets under management in these funds do not contribute to Record’s AUME. Record reports revenues arising from these licensing agreements under “Other currency services income”. Information on product investment performance is given in the Operating review section (pages 22 and 23). 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. The sales and marketing team is split between the offices in the UK, US and Switzerland, and a centralised team that provides comprehensive technical and administrative support to the sales offices operates from the headquarters based in the UK. Record’s aim over recent years has been to increase our local presence in our core non‑UK markets. To this end, last year we opened our Swiss office based in Zürich, and this year strengthened our local presence in the US market by increasing headcount through the recruitment of one experienced hire and by the transfer of two mid‑career employees from our UK headquarters. 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. 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. Further information is given in the market review section of the Business review starting on pages 20 and 21. 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 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 a marginal increase in headcount during the year. The number of employees (including Directors) in the Group at 31 March 2019 was 84 (2018: 83). 18 Record plc Annual Report 2019Strategic report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 Record plc 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 2019, the proportion of employee shareholders stood at 70% (2018: 72%). 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. 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 and Group. 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. Trade execution Compliance and risk Data Investment decisions Trade confirmation/ notification Reporting Reconciliation Settlement 19 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationversus the US dollar as it became apparent that the ECB would not raise rates in late 2019. The Bank of Japan kept policy rates unchanged, but announced it would allow ten‑year yields to move more freely around the zero per cent target. The Japanese yen saw heightened volatility towards the end of the year as global equity markets prices corrected. The Swiss National Bank continued to pursue exceptionally low interest rates but compared to previous years, appeared to apply only light‑touch interventions to the currency. The franc showed mixed performance, having declined against the US dollar but rose on a trade‑weighted basis, primarily reflecting strength versus the euro. Emerging Markets (“EM”) Emerging market currencies came under pressure during the first half of the financial year, both versus the US dollar and versus a basket of developed market currencies. Initial weakness was closely linked to the US dollar’s upward momentum, which exerted pressure on the balance sheets of EM countries and drove capital outflows both as domestic agents repaid US dollar denominated debt, and as foreign investors weighed up the opportunity of investing abroad versus at home. Broadly, EM central banks were prepared with adequate levels of FX reserves and reacted by raising real interest rates commensurately in order to lean against currency weakness. The largest depreciation by far was in the Turkish lira, where worsening of diplomatic relations with the US, coupled with an unorthodox approach to monetary policy sparked a currency crisis and double‑digit inflation trend. With already diminished liquidity, this led to a significant depreciation of the currency and the emergence of a large basis between currency‑implied interest rates and policy rates. In an unexpected act of independence, the Central Bank of Turkey in September increased its policy rate by 6.25% in an attempt to control inflation and arrest the currency’s decline. The economy underwent a rapid and painful adjustment and the currency had recouped most of its losses by the end of the financial year. 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, largely as a consequence of banking regulation, imbalances in the demand for hedging, and money market reforms. This dislocation is known as the FX basis. The FX basis typically imposes extra costs on hedgers from Switzerland, Japan, and the Eurozone, while adding a benefit to hedgers from the US and other higher‑yielding countries. Over the year, the basis has been less dominated by general trends and more by currency‑specific factors, leading to variation between currency pairs. After starting the financial year at elevated levels, the US dollar basis was generally stable over the first six months of the year, before year end pressures precipitated expansion and volatility of the FX basis in the second half of the year. MARKET REVIEW Political and economic uncertainty have continued to affect the financial markets and by extension the asset management industry and the currency markets in which we operate. The year to 31 March 2019 saw a tempering of economic activity in developed markets economies, with the exception of the US, where growth was robust yet anticipated by policymakers to also moderate. With this came diminished expectations for divergence in monetary policy cycles. Political risks re‑emerged during the year with the UK approaching its EU exit date, the US and China trade dispute, and renewed hostilities between the Italian government and EU officials. Emerging Market currencies came under pressure temporarily, but the Turkish lira experienced more severe currency depreciation during the summer. In spite of these events, developed market currency volatility remained low, but occasional large intra‑day exchange rate moves continued as a theme, driven by recent regulatory and technological changes. These regulatory constraints also continued to drive 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 historic norms, and initial expectations of further differentiation in policy cycles faded towards the end of the year. In the US, the Federal Reserve pushed ahead with additional interest rate hikes, but paused at a lower level relative to past cycles due to growing risks to its economic outlook. The US dollar appreciated on a trade‑weighted basis, with gains concentrated in the first three months of the year. The Bank of England hiked its policy rate pre‑emptively amid rising domestic cost pressures, but did so against a backdrop of political uncertainty and without conviction over whether it will remain an appropriate stance. Ongoing Brexit negotiations continued to cast a shadow over sterling, and political news became the primary driver of the currency, which fell versus the US dollar but rose marginally against a trade‑weighted basket of currencies, as the likelihood of a no‑deal Brexit was thought to have diminished. Concerns over slowing growth and inflation were not confined to the US, and as a result, monetary policy in the lower interest rate economies of the Eurozone, Japan, and Switzerland, remained exceptionally easy. The European Central Bank (“ECB”) maintained its stance of ultra‑accommodative policy, though confirmed the end of its Quantitative Easing programme. In contrast to the prior year, economic activity suffered from a number of set‑backs and the creation of an anti‑establishment government in Italy re‑introduced an aspect of political risk to the currency. The euro depreciated 20 Record plc Annual Report 2019Strategic reportVolatility, liquidity and market structure During the financial year volatility in the FX market remained low relative to history, despite ostensible risks stemming from Brexit negotiations, Italian politics, and the threat of an escalating trade war between the US and China. Although FX volatility remained low, large intra‑day exchange rate moves looked to have become more commonplace, for example, the Japanese yen “flash crash” in January saw the yen appreciate by over three per cent in the space of eight minutes. This phenomenon of suppressed volatility but large and abrupt price changes is thought to have been exacerbated by recent changes in both technology and regulation, which in turn have affected the traditional market making function’s ability to act as a “circuit breaker” during bouts of volatility. From a regulatory perspective, post‑financial crisis changes to capital requirements have made banks less keen to underwrite market risk and provide a market during periods of financial stress. Increasingly prevalent as alternative providers of liquidity are algorithmic‑based and high‑frequency traders. These market participants are thought to hold comparatively low levels of inventory and are often governed by tighter capital at risk limits. In effect, during periods of high volatility, algorithmic traders are also less willing to warehouse the risk of large positions and can withdraw liquidity from the market. As a result, a trend has emerged of ample liquidity and well‑functioning markets during low volatility environments, versus shallow liquidity and large intra‑day price movements during more volatile periods. With more constrained market making, large and price‑insensitive orders (e.g. via stop losses) look more likely to create ripples in the market – especially during illiquid hours and days. This, in part, may also have contributed towards the prevalence of range trading in FX markets during the financial year. Brexit Record has been planning its response to Brexit since the June 2016 referendum, with a working group meeting regularly to review workstreams relating to clients, colleagues and regulatory permissions. So‑called “passporting” permissions under the Markets in Financial Instruments Directive (“MiFID”) have historically been one of the main routes by which we can act for clients in the European Union outside the UK (the “EU27”). Maintaining these permissions in the event of a “hard Brexit” with no transition period or other equivalence arrangements has been uppermost amongst the Brexit‑related challenges to our business model and operations. As discussed in last year’s Annual Report, we had prepared a contingency plan to allow us to maintain passporting permissions through the establishment of an authorised subsidiary in Ireland. In the first calendar quarter of 2018, consensus emerged between the UK and the EU on the intention to implement a transition period, during which UK companies could continue to access EU27 markets as if the UK was still a member of the EU. As a result, we paused the implementation of our contingency plan, although we recognised the risk that the transition period might not materialise, including through Parliament not endorsing the Withdrawal Agreement. To address this risk we have developed further plans, including a client‑by‑client assessment of the regulatory basis on which we currently provide services to EU27 clients, and communication with each such client. As a result of this, as well as industry‑wide measures such as the Memoranda of Understanding agreed between the Financial Conduct Authority and EU regulators announced on 1 February 2019, at the time of writing we are confident we will be able to continue to provide services to all current EU27 clients post‑Brexit, even in the event of a “hard Brexit” with no transition period or other equivalence arrangements. This will be subject to further assessment in the light of any regulatory changes. In such a scenario, we would be constrained in marketing our products and services to new clients in certain EU27 countries, although even this constraint is moderated by enabling legislation in many such countries which would allow authorised UK firms to continue to market to professional clients. In this scenario we would quickly re‑assess the costs and benefits of establishing an authorised subsidiary within the EU27 countries, to eliminate any such remaining constraints. Although the main focus of our Brexit preparations has been on these regulatory permissions, we have also considered other effects on clients, and further consequences including the potential impact on colleagues. None of these other effects or consequences is expected to present a material challenge to our business model or operations. At the time of writing the UK Prime Minister, Theresa May, will shortly be replaced, the Withdrawal Agreement has not been endorsed by Parliament, and the Article 50 notice period has been extended to 31 October 2019. Despite this uncertainty, and as explained above, we expect to be able to continue to serve all our current EU27 clients thereafter, irrespective of whether and how the UK leaves the European Union. Regulation Record’s main regulatory focus during the financial year was on embedding regulatory practices following the introduction of MiFID II and reviewing relevant policies and procedures as part of our business‑as‑usual process. The European Market Infrastructure Regulation (“EMIR”) is undergoing changes which may affect the reporting and other services that we provide for some of our clients on a delegated basis. We have been assessing the impact of these changes and communicating with the affected clients ahead of the changes becoming effective. The upcoming Senior Managers and Certification Regime expansion to our sector comes into force in December 2019 and we have been tracking and working on our project to ensure we have the required structures, policies and procedures in place to meet the new requirements. 21 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationOPERATING REVIEW Product investment performance Hedging 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. Passive Hedging Over the past five 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. 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. Over the year, Record’s enhanced Passive Hedging service outperformed its relevant benchmark for most clients, although the magnitude of outperformance was lower than the long‑term average. Return for year to 31 March 2019 Return since inception1 0.05% 0.12% p.a. Value added by enhanced Passive Hedging programme relative to a fixed‑tenor benchmark 1. Since inception in October 2014. Dynamic Hedging 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 losses from currency on international assets when valuing positions in US dollars, as the US dollar appreciated against all G10 currencies. Record’s Dynamic Hedging product increased hedge ratios in line with US dollar strength, and helped protect clients against currency losses. Currency for Return Record had a number of Currency for Return products in the year. The Forward Rate Bias (“FRB”, also known as Carry) strategies and Emerging Market strategy are founded on market risk premia and as such perform more strongly in “risk on” environments. By contrast, Momentum, Value and the newly added Range Trading strategies are more behavioural in nature, and as a result are less risk‑sensitive. All five strategies can be combined to create the Record Currency Multi‑Strategy product. FRB The Forward Rate Bias Index Fund saw positive returns which were primarily driven by the relative strength of the higher yielding US dollar versus the lower yielding euro. Record remains committed to our belief that over time currency, and in particular the Carry strategy, can be a persistent and uncorrelated source of returns for investors, and that the Carry strategy will continue to generate long‑term returns. Emerging Market currency Record’s Emerging Market Currency Fund generated modestly negative returns after a volatile twelve months as emerging market currencies generally depreciated against the basket of developed market currencies. Returns in the Fund were mainly attributable to the depreciation of the Turkish lira, and Brazilian real, and Central Eastern European currencies. Currency Multi-Strategy Record’s principal Currency for Return product during the year was Currency Multi‑Strategy. This combines a number of diversified return streams. Record’s Multi‑Strategy mandates combining Carry, Emerging Market, Momentum, Value and now Range Trading strategies delivered negative overall performance over the period, notwithstanding the diversification of performance returns between the individual strategies. 22 Record plc Annual Report 2019Strategic report Fund name FTSE FRB10 Index Fund1 Emerging Market Currency Fund2 Currency Multi‑Strategy Fund3 Return for 12 months to 31 March 2019 % Scaling Return since Volatility since inception % p.a. inception % p.a. 1.8 1 4.20% (0.31%) 1.77% 1.29% 4.5‑5 (3.90%) (3.20%) 6.88% 6.34% 9.30% 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. Record Currency Multi‑Strategy Fund return data is since inception in February 2018, GBP base. Index/composite returns FTSE Currency FRB10 GBP Excess return1 Record Multi‑Strategy composite2 Return for 12 months to Return since Volatility since inception 31 March 2019 % p.a. % inception % p.a. 2.10% (1.20%) 2.22% 1.28% 4.53% 2.73% 1. FTSE Currency FRB10 GBP Excess return data is since December 1987, GBP base. 2. Record Multi‑Strategy composite is since inception in July 2012, showing excess returns data gross of fees in USD base, and scaled to a 4% target volatility. Scaling 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 select the level of scaling and/or the volatility target. The pooled funds have historically offered clients a range of scaling and target volatility levels. It should be emphasised that in this case “scaling” 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. The AUME of those mandates where scaling or a volatility target is selected is represented in Record’s AUME at the scaled value of the mandate, as opposed to the segregated mandate size or the pooled fund’s net assets. AUME development AUME expressed in US dollar terms decreased by 8% during the year ended 31 March 2019, finishing at $57.3 billion (2018: $62.2 billion). When expressed in sterling, AUME decreased marginally to £44.0 billion (2018: £44.3 billion). AUME development bridge – year to 31 March 2019 ($bn) +2.3 -4.5 -2.7 57.3 Net flows Markets FX effects and scaling adjustments AUME at 31 March 2019 62.2 AUME at 1 April 2018 23 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information OPERATING REVIEW CONTINUED AUME movements The Group has seen total net outflows of $4.5 billion during the year arising from inflows from both new and existing clients of $10.0 billion offset by outflows of $14.5 billion. Passive Hedging AUME fell by 9% to $48.2 billion at the end of the year (2018: $53.0 billion), including net outflows of $4.6 billion related to previously announced terminations of three commercial relationships but representing eight client legal entities. Other movements impacting Passive Hedging AUME included market factors (+$2.5 billion) and movements in exchange rates (‑$2.7 billion), which broadly offset each other. Dynamic Hedging AUME ended the year at $3.1 billion (2018: $4.3 billion), a decrease from last year of $1.2 billion. Net outflows of $0.7 billion included inflows of $0.4 billion in the first quarter and outflows of $1.1 billion in the final quarter. As separately reported in March 2019, Record undertook a series of tactical changes in order to realise gains on the market valuation of open positions on certain Dynamically Hedged mandates, thereby reducing the year end AUME position for Dynamic Hedging by approximately $1.1 billion. The impact of some or all of the reduction in AUME may prove to be temporary, although any increase or decrease will be dependent on future movements in underlying assets and FX markets. Market movements had an impact of ‑$0.5 billion. AUME composition by underlying asset class as at 31 March 2019 Passive Hedging Dynamic Hedging Multi‑product The Currency for Return product saw AUME inflows of $0.9 billion over the year, represented by inflows of $0.6 billion from a new Australian client in the first quarter, and a $0.3 billion inflow from an existing client into a bespoke product during the third quarter. External factors had a net impact of +$0.2 billion. Currency for Return AUME concluded the year at $2.7 billion (2018: $1.6 billion). Multi‑product AUME remained stable during the year, starting and ending the year at $3.0 billion. Market performance Record’s AUME is affected by movements in market levels because substantially all the Passive and Dynamic Hedging, and some of the Multi‑product mandates, are linked to equity, fixed income and other market levels. Market performance increased AUME by $2.3 billion in the year ended 31 March 2019 (2018: +$1.3 billion). 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. Equity % 27% 95% —% Fixed income % 44% —% —% Other % 29% 5% 100% 24 Record plc Annual Report 2019Strategic report Forex Approximately 87% of the Group’s AUME is non‑US dollar denominated. Therefore, foreign exchange movements may have an impact on AUME when expressing non‑US dollar denominated AUME in US dollars. Foreign exchange movements decreased AUME by $2.7 billion over the year. This movement does not have an equivalent impact on the sterling value of fee income. At 31 March 2019, the split of AUME by base currency was 13% in sterling, 57% in Swiss francs, 11% in US dollars, 16% in euros and 3% in other currencies. AUME composition by base currency Base currency Sterling US dollar Swiss franc Euro Australian dollar Canadian dollar Singapore dollar Swedish krona Product mix AUME composition by product Passive Hedging Dynamic Hedging Currency for Return Multi‑product Cash Total 31 March 2019 31 March 2018 GBP 5.7bn GBP 6.6bn USD 6.3bn USD 6.9bn CHF 32.5bn CHF 34.7bn EUR 8.3bn EUR 7.1bn AUD 1.0bn — CAD 0.6bn CAD 0.5bn SGD 0.1bn SGD 0.1bn SEK 3.7bn SEK 2.6bn 31 March 2019 31 March 2018 US $bn 48.2 % US $bn 84% 53.0 3.1 2.7 3.0 0.3 5% 5% 5% 1% 4.3 1.6 3.0 0.3 57.3 100% 62.2 % 85% 7% 3% 5% —% 100% Aggregate Hedging AUME represented 89% of the total AUME, down slightly on the prior year (2018: 92%). Currency for Return AUME increased as a proportion of total AUME with inflows of +$0.9 billion, representing 5% of total AUME at year end (2018: 3%). Multi‑product AUME remained unchanged on last year. Client numbers Client numbers saw a net increase of 5, ending the year at 65 (2018: 60). The net increase of five clients comprised 13 new clients (representing seven new commercial relationships) less eight clients whose mandates were terminated, the latter representing three commercial relationships. 25 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information FINANCIAL REVIEW Despite a challenging backdrop, it’s pleasing to report growth in Group revenues, profit and earnings for the year. Steve Cullen Chief Financial Officer 26 Overview Total revenue for the year increased by 5% to £25.0 million (2018: £23.8 million) and operating expenses, excluding variable remuneration, increased by 2% to £13.3 million. Variable remuneration rose to £3.4 million (2018: £3.1 million), with the operating profit margin increasing marginally to 32% (2018: 31%) and profit before tax rising by 9% to £8.0 million (2018: £7.3 million). Profit and loss (£m) Revenue Cost of sales Gross profit Personnel (excluding GPS) Non‑personnel cost Other income or expense Total expenditure (excluding GPS) GPS Operating profit Operating profit margin Net interest received Profit before tax Tax Profit after tax 2019 25.0 (0.4) 24.6 (8.2) (5.1) — (13.3) (3.4) 7.9 32% 0.1 8.0 (1.6) 6.4 2018 23.8 (0.3) 23.5 (7.9) (5.4) 0.2 (13.1) (3.1) 7.3 31% — 7.3 (1.2) 6.1 Revenue Record’s revenue derives from the provision of currency management services, fees for which can be charged through management fee only or management plus performance fee structures, which are available across Record’s product range. Management fee only mandates are charged based upon the AUME of the product, and management plus performance fee structures include a lower percentage fee applied to AUME, and a proportional share of the specific product performance measured over a defined period. Management fees are typically charged on a quarterly basis, although Record may charge fees monthly for some of its larger clients. Performance fees can be charged on quarterly, six‑monthly or annual performance periods on the basis agreed with the particular client. As shown under AUME development on page 23, average levels of AUME, and hence management fees, decreased over the year predominantly as a result of net outflows of $4.5 billion more than offsetting underlying increases in mandates due to market growth (+$2.3 billion). In addition, some enhanced Passive Hedging clients chose to move from management fee only to a lower management fee with a performance related fee during the year. Notwithstanding this backdrop, Record’s aggregate revenue for the year increased by 5% to £25.0 million including performance fees of £2.3 million (2018: £nil). Record plc Annual Report 2019Strategic report Revenue analysis (£m) Management fees Passive Hedging Dynamic Hedging Currency for Return Multi‑product Total management fees Performance fees Other currency services income Total revenue Year ended 31 Mar 2019 Year ended 31 Mar 2018 11.6 4.6 1.8 4.3 22.3 2.3 0.4 25.0 12.6 5.1 1.8 4.0 23.5 — 0.3 23.8 Management fees Management fees earned during the year fell by 5% to £22.3 million (2018: £23.5 million). Record’s Enhanced Passive Hedging programme has been developed to take advantage of changes in the FX market structure so as to minimise costs and to add value for clients. These mandates may be charged at reduced management fee rates plus a performance‑related fee. As expected, there has been a consequent reduction in the aggregate Passive Hedging management fees for the year, exacerbated by the net outflows seen from Passive Hedging mandates predominantly during the second half of the year. Passive Hedging management fees decreased by 8% to £11.6 million for the year (2018: £12.6 million). As reported in the prior year, Record’s remaining UK‑based Dynamic Hedging clients either converted their mandates to Passive Hedging or terminated due to the negative returns and cash flows caused by the persistent weakness in sterling following the result of the EU referendum. Dynamic Hedging management fees fell by 10% to £4.6 million (2018: £5.1 million), predominantly reflecting the full year effect of the above changes. Currency for Return management fees, which includes Multi‑strategy mandates, remained broadly consistent with the prior period notwithstanding net inflows of $0.9 billion in the year. This is due to one new client mandate starting during the period on a reduced management fee plus performance fee basis, and one existing client mandate moving to a more bespoke service on a different and lower fee rate. Average management fee rates for most product lines have remained broadly constant throughout the year ended 31 March 2019. Average management fee rates for Currency for Return mandates decreased during the year for those reasons stated above, plus the impact of increased scaling of portfolio sizes for mandates with defined volatility targets where the fee rate is linked to the target volatility. Average Currency for Return fee rates on AUME can change as a result of increasing or decreasing portfolio sizes for mandates with defined volatility targets (“scaling”), 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. Further information on the scaling of Currency for Return mandates is given in the operating review on page 23. Performance fees Aggregate performance fees of £2.3 million were earned during the year (2018: nil). Other currency services income Other currency services income totalled £0.4 million (2018: £0.3 million) and consists of fees from ancillary currency management services including revenue from the licensing agreement with WisdomTree. Expenditure Operating expenditure The Group operating expenditure (excluding variable remuneration) increased by 2% to £13.3 million for the year (2018: £13.1 million), reflecting the continued focus on cost discipline across the business. Growth in personnel costs of 4% to £8.2 million (2018: £7.9 million) includes inflationary increases in salaries at the start of the financial year, and reflects the growth in average employee numbers to 85 (2018: 81). Headline non‑personnel costs decreased by 6% during the year to £5.1 million (2018: £5.4 million), although remained broadly consistent when considering the one‑off costs of £0.2 million incurred last year relating to the Tender Offer in July 2017. Other income or expenses were negligible for the year (2018: income £0.2 million) and represent gains or losses made on derivative financial instruments employed by the Group’s seed funds or as a result of hedging activities, or other FX adjustments or revaluations. 27 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information Financial stability and capital management The Group’s balance sheet is strong and liquid with total net assets of £27.4 million at the end of the year, including current assets managed as cash totalling £23.7 million. The business remains cash generative, with net cash inflows from operating activities after tax of £7.0 million for the year (see note 25 to the financial statements). 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. 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 the 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 Deductions: intangible assets Regulatory capital resources 2019 27.3 (0.3) 27.0 2018 26.6 (0.2) 26.4 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. FINANCIAL REVIEW CONTINUED Expenditure continued Group Profit Share (“GPS”) Scheme The Group operates a GPS Scheme i.e. variable remuneration, such that a long‑term average of 30% of underlying operating profit before GPS is made available to be awarded to staff. The Remuneration Committee has agreed that for the year ended 31 March 2019, the GPS Scheme is 30% of pre‑GPS operating profit, which represents £3.4 million, an increase of 10% over the previous financial year (2018: £3.1 million) and in line with Group financial performance. Further information on variable remuneration, and specifically the changes to the operation of the Group Profit Share scheme from 1 April 2019 can be found in the Remuneration report starting on page 53. Operating profit and margin Group operating profit increased by 8% to £7.9 million (2018: £7.3 million) and the Group operating margin increased marginally to 32% (2018: 31%), driven by the 5% increase in total revenue and the maintained focus on cost discipline across the business. Cash flow The Group consolidated statement of cash flows is shown on page 79 of the financial statements. The Group’s year end cash and cash equivalents stood at £13.0 million (2018: £12.5 million). The cash generated from operating activities before tax is shown in note 25 to the financial statements and was £8.2 million (2018: £4.3 million). During the year, taxation of £1.2 million was paid (2018: £1.6 million) and £5.5 million was paid in dividends (2018: £6.8 million). The prior year included a cash outflow of £10.0 million representing the Group repurchase of 22.3 million shares via a Tender Offer. At the year end, the Group held money market instruments with maturities between three and twelve months, worth £10.7 million (2018: £10.2 million). These instruments are managed as cash by the Group but are not classified as cash under IFRS rules (see note 17 of the financial statements for more details). Dividends An interim ordinary dividend of 1.15 pence per share (2018 interim: 1.15 pence) was paid to shareholders on 28 December 2018, equivalent to £2.3 million. As disclosed in the Chairman’s statement on page 5, the Board is recommending a final ordinary dividend of 1.15 pence per share, equivalent to £2.3 million, taking the overall ordinary dividend for the financial year to 2.30 pence per share. Simultaneously, the Board is also paying a special dividend of 0.69 pence per share (equivalent to £1.3 million), making the total dividends paid for the year of £5.9 million equivalent to 91% of total earnings of 3.27 pence per share. The total ordinary and special dividends paid in respect of the prior year ended 31 March 2018, were 2.30 pence per share, and 0.50 pence per share respectively, equivalent to total dividends of £5.5 million and representing 92% of total earnings of 3.03 pence per share. 28 Record plc Annual Report 2019Strategic report Market disruption, changes to regulation and sustained political and economic uncertainty continue to provide challenges to the Group and the environment in which it operates. Through continued enhancement of its products and services and in maintaining its approach to innovation, the Directors believe the Company to be capable of meeting such challenges. However, 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. As discussed in more detail in the Business review on page 21, the Directors expect to be able to continue to serve all current EU27 clients irrespective of whether and how the UK eventually leaves the European Union (Brexit). For this reason the Directors consider the level of risk posed by Brexit to the continued operation and viability of the business to be significantly lower than the principal risks noted on pages 30 to 33 of the Strategic report, and the scenarios modelled through 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. 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. 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 2022. 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 8 and 30 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. Such scenarios include items that may have a severe effect on the revenue generation capability and resulting profitability of the Group, for example: • market downturn – resulting in AUME decreasing, either through outflows and/or a reduction in value due to the link to other financial markets; and • operational risk event – causing AUME outflows and potentially reputational damage. 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. 29 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationRISK MANAGEMENT The Record culture is one of integrity and accountability; core values that are embedded into the control environment across all areas of the business. 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 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 its 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) considers 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. During the year, an initiative to review Record’s risk management framework was conducted by management with the support of the Audit and Risk Committee. The focus of the review was the improvement of the risk monitoring and reporting processes, including the articulation of Record’s residual risks measured versus its risk appetite. Further information can be found in the Audit and Risk Committee report on page 50. The Board reviews and considers the principal risks, and its 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 Capital adequacy risk is the risk that the Group is unable to support its strategic business objectives 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 principal risks discussed further on pages 32 and 33. 30 Conduct risk 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 as a separate risk category within the Principal risks section on pages 32 and 33. Reputational risk Reputational risk is the risk of loss or adverse impact arising from an 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 as a separate risk category within the Principal risks section on pages 32 and 33. The remaining principal risk categories are listed below and further detail is given on pages 32 and 33: Strategic risk Business risk Market risk Operational risk Investment risk 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 the 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. Record plc Annual Report 2019Strategic reportRisk management framework – overview Record Board Executive Committee Audit and Risk Committee Investment Committee Risk Management Committee 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 Chief Technology Officer, 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 determined 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. External independent assurance activity (independent assurance – PwC) Statutory external audit ISAE 3402 and AT-C320 service auditor’s report on internal controls Embedded culture of integrity and accountability 1st line of defence: 2nd line of defence: 3rd line of defence: 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”). External independent assurance for shareholders is gained through the statutory annual external audit process run by PricewaterhouseCoopers LLP (“PwC”), the Group’s external auditor. The Group also commissions the external auditor to perform the annual service auditor’s report in respect of Record Currency Management Limited 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. Business operations and support Control and oversight functions Internal audit (independent assurance – Deloitte) The Group considers the strong capital buffer retained under the capital and dividend policy provides an effective 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 principal risks faced by the business alongside an explanation of how these risks have been managed or mitigated, and how the significance of the risk has changed during the year. These risks fall into a number of distinct categories and the means to mitigate them are both diverse and relevant to the nature of the risk concerned. 31 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationRISK MANAGEMENT CONTINUED Strategic risk 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 Rating Change Mitigating activities Failure to deliver strategy – risk of failure to achieve strategic objectives through internal or external factors. Medium Potential impact – reduced short‑term profitability, and growth prospects and viability limited longer‑term. Medium Margin compression – 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 and lower returns for shareholders. The Board sets strategy and is responsible for ensuring the Group has the right structure, leadership and culture to execute. Regular and ongoing review of strategic options, opportunities and threats. Bespoke solutions and added‑value to differentiate products within the market. Focus on offering premium service differentiates Record from competition and builds long‑standing and “trusted adviser” relationships. Continued investment into resources and technology to ensure effective and cost‑efficient processes. Business risk 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 Rating Change Mitigating activities Concentration risk – the risk of concentration either by product, client type or geographical location leading to over‑reliance on any one category of revenue. Medium 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 – 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. Medium Regulatory change – the risk of failure by the Group to comply with the introduction of new regulation or changes to existing regulation. Low Potential impact – ability to do business may be affected resulting in loss of revenue or regulatory censure. Low Market liquidity 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. Potential impact – a reduction in market liquidity or the non‑functioning of financial markets could affect Record’s ability to meet its contractual obligations to clients, resulting in outflows and reductions to revenue. 32 Diversification of investment capabilities across risk‑reducing and risk‑taking products. Commitment to client services excellence and transparent investment process is integral to retention. Building long‑term and close trusted adviser relationships with clients assists with retention even in the event of regulatory change. Continued investment in resources to broaden capabilities in research, investment and client servicing. Promotion of collegiate and professional culture and office environment plus career opportunities in the form of study support and overseas secondments. Remuneration policy and share‑based remuneration schemes promote key personnel retention. Minimal reliance on key investment personnel and products managed on a predominantly systematic process. Experienced Board and senior management engage proactively with industry bodies and have a transparent and open relationship with regulators. Investment in expertise, systems and training to ensure robust compliance culture maintained across the business. 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 result of the EU referendum in June 2016. Record plc Annual Report 2019Strategic 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 Rating Change Mitigating activities Medium Technology and information security 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 and reputational consequences. Comprehensive disaster recovery (“DR”) and business contingency plans are in place and tested on a regular basis. Information technology policies and technical standards are deployed across the Group, including induction and regular security awareness training. Cyber risk is continuously monitored within the business and included in the ongoing risk assessment process performed across the Group, including internal audit. Cyber‑related metrics are monitored, reported and reviewed in monthly management information and Board information packs. Operational control environment – 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 and reputational consequences. Low Dedicated and experienced portfolio management team oversees the investment process. Dedicated and independent Front Office Risk Management team provides pre‑ and post‑trade compliance assurances. Compliance and Risk department oversees adherence to formal and established procedures via a structured monitoring programme, reporting directly to the Risk Management Committee. Automated post‑trade compliance tests monitor whether programmes are running in line with expectations and allow timely resolution. Internal audit function reports independently to the Audit and Risk Committee, reviewing higher‑risk operational areas. Annual ISAE 3402 and AT‑C 320 service auditor’s report on internal controls independently reviewed and tested by PwC. 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 Rating Change Mitigating activities Product underperformance – the risk that long‑term investment performance is not delivered. High Potential impact – damages prospects for winning and retaining clients, minimises revenues through reduced management and performance fees and may cause reputational damage. Experienced Investment Committee meets regularly ensuring consistent core investment processes are applied. Dedicated currency management research and investment focus. Diversification, both through offering multiple strategies that benefit from opposing market conditions i.e. “risk‑on” and “risk‑off”, 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. 33 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information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 has historically been built around three key areas i.e. Community, Workplace and Environment. During the year we have started to incorporate environmental, social and governance (“ESG”) issues into some of our currency management products. This has resulted in Record becoming one of the first currency managers to have been accepted as a signatory to the Principles for Responsible Investment (as announced in June 2018) and the development of our first return‑seeking strategy incorporating ESG factors. Responsible investment As part of our drive to incorporate ESG factors into active currency products, Record has worked in collaboration with Oxford‑based researchers to extend the boundaries of ESG beyond its existing base in equities and bonds, to encompass the currency markets. Our experience of existing investment strategies takes into account the links between currency returns and productivity gains, so we have focused on those ESG factors most clearly related to economic productivity. As there is more ESG variability between the emerging markets (“EM”) economies than the developed ones, our first ESG process has been designed to tilt the EM currency strand of the Multi‑Strategy product. Our process applies insights on the relationship between productivity and exchange rates to a database of country‑specific ESG data. The result is a range of currency‑relevant ESG factors related to the United Nations Sustainable Development Goals. These factors (for example education, child mortality, improved water sources and enforcement of legal contracts) are used to construct an ESG metric which tilts the Multi‑Strategy currency portfolio in a pro‑ESG manner. Record has seeded this strategy and will offer it to clients in due course. Record is keen to collaborate with external parties including clients who might wish to apply the methodology to reflect their own specific ESG views, and with research institutes. Record will continue to develop the database as more material becomes available, in particular from developing countries. Community Over the course of the year, the Group made charitable donations totalling £16,839. 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 fundraising competitions. During the year a scheme allowing UK employees to give to charity through the payroll was implemented. Charitable donations (£’000) FY-19 FY-18 FY-17 16.8 13.7 14.7 Human rights Record complies fully with appropriate human rights legislation in the countries in which it operates. Workplace Record’s working environment is designed to encourage bright, dynamic and committed individuals to 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. The New York and Zürich offices follow similar principles, taking into account the smaller numbers of staff. The office environments and culture promote 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 within the business. 34 Record plc Annual Report 2019Strategic report In addition, the Group has improved its maternity and shared parental benefits during the year, and continues to provide a number of other 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. Environment 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 has an established internship programme for students and during the year we welcomed interns from Oxford University, Imperial College of London, ETH Zürich, and University of Warwick. Staff retention (%) FY-19 FY-18 FY-17 84% 93% 83% 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 all recruitment processes are fair and are carried out objectively, systematically and in line with the requirements of employment law. The Group ensures that all staff are aware that it is not acceptable to discriminate, harass or victimise anyone, and also that it is unlawful and that 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 a diverse pool of candidates, 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 2019 Female Male Board Directors Senior management Other staff All employees 3 3 24 30 38% 17% 41% 36% 5 15 34 54 62% 83% 59% 64% 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 87% of emissions (2018: 86%). Gross CO2 emissions (Tonnes) FY-19 47 FY-18 58 FY-17 67 316 348 366 Scope 2 Scope 3 Gross CO2 emissions by activity (Tonnes) FY-19 FY-18 FY-17 123 120 138 Commuting Business travel 184 218 215 Other 54 68 79 Gross CO2 emissions per head (Tonnes) FY-19 FY-18 FY-17 4.4 5.3 6.7 The Company’s Strategic report is set out on pages from IFC to 35 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 12 June 2019 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. 35 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationChairman’s introduction Board of Directors Corporate governance report Nomination Committee report Audit and Risk Committee report Remuneration report Directors’ report Directors’ responsibilities statement 37 38 40 46 49 53 66 69 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 2019. 36 Record plc Annual Report 2019Corporate governanceCHAIRMAN’S INTRODUCTION I am pleased to introduce our corporate governance report in which we describe the governance arrangements in place, the operation of the Board and its Committees and how the Board has discharged its responsibilities during the year. I can confirm that 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 range of products and services. As a Board we have always believed that the long-term growth and success of the Record Group is driven by our focus on culture, setting the tone from the top and establishing robust corporate governance practices. I am confident that the Group’s current governance arrangements are both appropriate and highly effective and that going forward the Group will continue to embrace regulatory, governance and best practice changes in its drive to best serve its stakeholders – clients, shareholders, employees, suppliers, regulators and wider society. I would like to thank all my colleagues on the Board and our senior management team for their continued commitment, enthusiasm and contribution during the year. Neil Record Chairman 12 June 2019 Board overview The Board is responsible for the stewardship of the Company. Further information on the corporate governance framework is provided on pages 40 to 43. BOARD BOARD COMMITTEES NOMINATION REMUNERATION AUDIT AND RISK OPERATIONAL COMMITTEES EXECUTIVE INVESTMENT RISK MANAGEMENT 37 Record plc Annual Report 2019GovernanceStrategic reportGovernanceFinancial statementsAdditional information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 N James Wood‑Collins Chief Executive Officer Neil 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. 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. As founder of the business Neil remains integral to the development of Record’s products and the direction of business strategy. As chairman he is a strong figurehead, well-known and well-respected within the field of currency management and as such is an asset to the Board. James 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. James’s extensive experience of the corporate finance sector means he is well placed to be influential in driving the strategy of the business forward. With over 10 years’ service at Record he has thorough knowledge of the business and its operational processes, allowing him to take an active role in both Board activities and the day-to-day leadership of the business. Jane Tufnell Senior Independent Director A N R* Jane 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, chair of Odyssean Investment Trust plc, and is an independent non-executive director of both JPMorgan Claverhouse Investment Trust plc and ICG Enterprise Trust plc. Jane has a wealth of investment management expertise and her experience as a non-executive director on other boards means she is well placed to bring valuable market experience and good business insight to the Board in order to drive the business forward. Jane’s experience on other boards also positions her well to serve as Senior Independent Director. A Audit and Risk Committee N Nomination Committee R Remuneration Committee * Chair 38 Gender diversity As at year end and as at the  date of report MALE 62% FEMALE 38% Board tenure As at year end ≤ 3 yrs 25% > 3 yrs ≤ 6 yrs 13% > 6 yrs 62% BOARD OF DIRECTORSRecord plc Annual Report 2019GovernanceSteve Cullen Chief Financial Officer Rosemary Hilary Non-executive Director * A N R Tim Edwards Non-executive Director A N R * Steve qualified as a Chartered Accountant in 1994 and gained 15 years of audit experience within public practice. He joined Record in October 2003, and led Record’s 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. Steve was appointed to the Board and made Chief Financial Officer in March 2013. With his FCA qualification and over 30 years’ experience, including over 15 years within financial services, Steve brings considerable accounting, financial and risk management expertise to the Board. Rosemary was appointed as a Non-executive Director in June 2016. She was previously Chief Audit Officer of TSB Bank, and has held senior regulatory roles within the Bank of England, the FSA and then the FCA. She is also a non-executive director of Willis, the global broker, Vitality Life and Vitality Health. She is also a member of the MBA Advisory Board at Cass Business School. Rosemary is a qualified accountant with expertise in governance, business risk and control, and has strong knowledge of the asset management, insurance and banking sectors. She provides support and challenge to Record’s management, and in doing so helps the Board maintain its strong governance framework. Tim Edwards is a biotech entrepreneur, who is currently chair of both Karus Therapeutics Limited and Storm Therapeutics Limited, and a director of Ervaxx Limited. Previously, he was a member of the governing Board of InnovateUK, the UK’s innovation agency, a director of the Cell and Gene Therapy Catapult and Chair of the UK BioIndustry Association. He was appointed as a non-executive director of Record on 21 March 2018. Tim is a Chartered Accountant with a background in corporate finance and venture investing, and he has extensive corporate development and people management experience. Tim adds insight to Board discussions ensuring that the Board continues to focus on mid- to long-term value development. Leslie Hill Head of Client Team Bob Noyen Chief Investment Officer Leslie joined Record in 1992 and was appointed Head of Sales and Marketing in 1999. Her extensive prior experience includes working at Lloyds Bank and Merrill Lynch where she was Director and Head of Corporate Foreign Exchange Sales worldwide. Bob 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). Having worked at Record for 27 years Leslie has a deep understanding of Record’s products and the needs of clients. As Head of the Client Team she drives the client-focused culture of the business and is instrumental in maintaining existing and developing new client relationships, as well as developing and mentoring her team. She is therefore very well-placed to provide a client perspective during Board discussions. Bob has extensive knowledge of currency and other markets and he plays a key role in the development of Record’s products, ensuring products evolve to meet the ever-changing needs of clients. Bob therefore brings a product focus to Board deliberations. He is also closely involved in some of Record’s most significant client relationships. 39 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationCORPORATE GOVERNANCE REPORT 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 through the year ended 31 March 2019, 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.); and • Directors have not been re-appointed on an annual basis (B.7.2.), although they will all stand for reappointment at the 2019 AGM, and on an annual basis thereafter. 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 interests of the business and are not detrimental to the high standards of corporate governance it has established for the Group. The departures from the Code are fully explained in the following narrative. The latest version of the UK Corporate Governance Code was published in July 2018 and the new Code applies to accounting periods beginning on or after 1 January 2019. The new Code will apply to Record with effect from 1 April 2019, and going forward Record will adopt the principles set out in the latest Code as deemed appropriate given the size and structure of the business. 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 diagram on page 37 gives an overview of the Group’s core governance framework. Further details of these committees are provided below. The Board of Directors Board responsibilities The Board has a schedule of matters specifically reserved for its decision and approval, which includes but is not limited to: • determining the Group’s long-term strategy and objectives; • authorising significant capital expenditure; • approving the Group’s annual and interim reports and preliminary announcements; • the setting of interim and special dividends and recommendation of final dividend payments; • ensuring the effectiveness of internal controls; • the 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 three Non-executive Directors, Jane Tufnell, being the Senior Independent Director, Rosemary Hilary and Tim Edwards. The biographical details of the Board members are set out on pages 38 and 39. David Morrison resigned as a Non-executive Director effective 30 September 2018 having served on the Board for nine years. There have been no new appointments to the Board since the appointment of Tim Edwards in March 2018. 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 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. 40 Record plc Annual Report 2019GovernanceUnder the UK Corporate Governance Code July 2018, all directors should be subject to annual election by shareholders. The Board has reviewed the recommendations of the Code and the provisions in the Articles and has determined that annual re-election of all directors is appropriate, and accordingly all eight Board Directors will stand for re-election at the 2019 AGM. Non-executive Directors’ letters of appointment stipulate that they are expected to commit sufficient time to discharge their duties. Non-executive Directors are required to notify the Chairman before taking on any additional appointments. Details of other roles held by the Non-executives are set out in their biographies on pages 38 and 39. The Board is satisfied that all Directors continue to be effective and demonstrate commitment to their respective roles. The Executive Directors are employed on a full-time basis and do not have any other significant commitments outside of the Record Group. Neil Record, as Non-executive Chairman, works on a part-time basis. For details of Executive Directors’ service contracts, termination arrangements and Non-executive Directors’ letters of appointment, please refer to the Remuneration Report, page 57. Board member diversity The Board has approved a policy for ensuring Board member diversity and has delegated the responsibility for addressing Board diversity to the Nomination Committee. The Nomination Committee reviews Board composition in the context of diversity and reports its recommendations to the Board to ensure diversity is achieved. The Board acknowledges the importance of diversity in its broadest sense in the boardroom as a driver of board effectiveness. Diversity encompasses diversity of perspective, experience, background, psychological type and personal attributes. The Board recognises that gender diversity is a significant aspect of diversity and acknowledges the role that women with the right skills and experience can play in contributing to diversity of perspective in the boardroom. The Group’s Board Diversity Policy sets out that the Board will endeavour to ensure that the minority gender on the Board represents at least one-third of the Board. The Board currently has three female members in a board of eight and thus women make up 38% of the Board. The Board’s opinion is that the current composition of members comprises a good mixture of skills, experience, knowledge and backgrounds 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 35. 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. 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. Senior Independent Director The Senior Independent Director’s role is to act as a sounding board for the Chairman, oversee the evaluation of the Chairman’s performance (see page 42) and serve as an intermediary for the other Directors if necessary. She is also available as an additional point of contact for shareholders and other stakeholders should they wish to raise matters with her rather than the Chairman or the Chief Executive Officer. 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. Independence of the Non-executive Directors In determining the independence of Non-executive Directors, the Board has taken into consideration the guidance provided by the Code. The Board considers 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. Director appointments and time commitment The rules providing for the appointment, election, re-election and the removal of Directors are contained in the Company’s Articles of Association, these remain unchanged from the previous year and are made available for inspection by the Company’s shareholders at each AGM. The Company’s Articles of Association may be amended by special resolution of the shareholders. 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. 41 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationCORPORATE GOVERNANCE REPORT CONTINUED The Board of Directors continued Board meetings The Board met six times between 1 April 2018 and 31 March 2019 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 unable 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 2019. 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 Tim Edwards James Wood-Collins Steve Cullen Leslie Hill Bob Noyen 6 6/6 2/3 6/6 6/6 6/6 6/6 6/6 3/6 6/6 6 n/a 3/3 6/6 5/6 6/6 n/a n/a n/a n/a 7 n/a 4/4 7/7 7/7 7/7 n/a n/a n/a n/a 4 3/4 3/3 4/4 4/4 3/4 n/a n/a n/a n/a David Morrison attended meetings up to his resignation, effective 30 September 2018, although he was unable to attend the Board meeting held in June 2018 due to a prior commitment. Leslie Hill was unable to attend the Board meetings held in July 2018 and November 2018 due to prior commitments and unable to attend the Board meeting held in September 2018 due to a client visit. Rosemary Hilary was unable to attend the Audit and Risk Committee meeting held in January 2019 due to a prior commitment. Neil Record was unable to attend the Nomination Committee meeting held in May 2018 due to a prior commitment. Tim Edwards was unable to attend the Nomination Committee meeting held in July 2018 due to a prior commitment. Each Director unable to attend a meeting gave their apologies in advance. The Non-executive Directors met without the Executive Directors on several occasions throughout the year, prior to scheduled meetings. 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, Senior Independent Director and 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 collated into a report 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. 42 Record plc Annual Report 2019Governance 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 conducts an annual appraisal of the performance of the Chairman with input from the other Board members. The outcome of these appraisals in 2019 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 46 to 48; • Audit and Risk Committee – report set out on pages 49 to 52; and • Remuneration Committee – report set out on pages 53 to 65. 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 Nomination, Audit and Risk and Remuneration 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. 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, systems development, 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 nine out of twelve meetings in the year under review). Minutes of all meetings are circulated to the Board for review and comment. 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 Chief Technology 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. 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 Audit and Risk Committee; • the Investment 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 framework is provided on pages 30 and 31 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 2019 and is satisfied that the internal control environment is appropriate (see “Internal controls and risk management” on page 51). 43 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationCORPORATE GOVERNANCE REPORT CONTINUED Directors’ duties – compliance with s172 of the Companies Act 2006 Section 172 of the Companies Act 2006 requires directors to promote the success of the company for the benefit of the members as a whole and in doing so to have regard to the interests of stakeholders including clients, employees, suppliers, regulators and the wider society in which it operates. The table below sets out how Record has engaged with its key stakeholders and how the Board and the business has considered their interests. Clients Clients are the central focus of Record’s business. The Group’s resilience and ongoing success is built upon the ability to understand clients’ evolving needs and respond to them accordingly. • The Group’s operational infrastructure is built around the specific requirements of our clients, including systems and controls to reduce risk and manage each stage of the process as efficiently as possible. Shareholders Record relies on the support and engagement of its shareholders to deliver its strategic objectives and grow the business. People Record’s people are central to the ongoing success of the business and the Group aims to attract, retain, develop and motivate the right people for current and future business needs. • The Client Team builds lasting relationships with current and potential clients to develop a clear view of client objectives and how these will evolve. • Regular review meetings with clients ensure client requirements are consistently monitored. • The Board considered the full-year and half-year results. Both the Group Chief Executive and Chief Financial Officer presented them to major investors. • Outside of results presentations, meetings are held with investors as and when requested. • The primary means of communicating with shareholders is through the Annual General Meeting, the Annual Report and Accounts, half-year results and related presentations. All of these are available on the Company’s website and the Interim Report and Annual Report and Accounts are posted to all shareholders. The Group’s website also contains information on the business of the Company, corporate governance, all regulatory announcements, key dates in the financial calendar and other important shareholder information. • Record engages with its employees through a variety of channels including a company intranet, management briefings, email updates and presentations by the Group Chief Executive to discuss progress made by the business, together with future objectives and challenges. • In 2018 Record conducted an employee opinion survey to assess staff sentiment and the Executive Committee and the Board discussed the results and agreed an action plan to address the issues raised. • The Group seeks to encourage employees in developing their careers, offering assistance in such forms as study support and the possibility of secondments to overseas branches. 44 Record plc Annual Report 2019GovernanceSociety Record recognises the responsibility it has to the local community, wider society and the environment. • Record aims for high standards of governance across the Group. • We are proud to support the communities in which we operate and have a long history of contributing through monetary donations, gift giving and employee time. • External expertise and sector experience is used to enhance the processes and controls across Record’s suite of products and services, for example PwC’s service auditor report (ISAE 3402) on internal controls and Record’s relationship with Deloitte as internal auditor. • A close working relationship with suppliers helps to maintain the highest quality of products and services procured in a cost-efficient manner. • Record engages with regulators and policymakers as appropriate to ensure that our business understands and contributes to evolving regulatory requirements. • The Audit and Risk Committee receives regular reports from the Head of Compliance and Risk which cover the Group’s regulatory processes and procedures and its relationship with regulators. The reports also outline the material changes in the regulatory environment in which the Group operates. In 2018/19, these included the Group’s implementation of GDPR, MiFID II and the possible impacts of Brexit. External Suppliers Record relies on the use of external suppliers to supplement the Group’s own infrastructure benefiting from the expertise these suppliers provide. Regulators As a global business, Record seeks to have transparent and open relationships with its regulators around the world. Regulators provide key oversight of how the business is run thereby offering comfort to our clients. Approved by the Board and signed on its behalf by: Joanne Manning Company Secretary 12 June 2019 45 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationNOMINATION COMMITTEE REPORT Jane Tufnell Chair of the Nomination Committee 46 Role of the Committee 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. 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 for making recommendations to the Board as necessary. 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; • 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 regularly reviewing, job specifications for the Chairman and Chief Executive Officer, including the time commitment expected; • preparing, and regularly reviewing, 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; 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. Record plc Annual Report 2019GovernanceMembership of the Committee The Committee has been chaired by Jane Tufnell since September 2016. Jane is supported by the other independent Directors, Rosemary Hilary and Tim Edwards and the Group Chairman, Neil Record. David Morrison served on the Committee until his resignation as a Non-executive Director, effective 30 September 2018. Committee meetings The Committee met on four occasions during the year ended 31 March 2019 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 42. The 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 Board diversity and membership The Group’s Board Diversity Policy was last reviewed by the Committee in November 2018. The Committee agreed the policy remained appropriate. 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 Group’s Board Diversity Policy. Time commitment required for Non-executive Directors In May 2019 the Committee reviewed the roles undertaken by the Non-executive Directors and the time necessary to undertake the tasks required. The Committee noted that formal Board meetings and sub-committee meetings are well attended by the Non-executive Directors and that they are also willing to devote the time necessary to address ad hoc issues outside scheduled meetings to allow prompt decisions to be made. The Committee agreed that the number of meetings is sufficient to address all issues arising and is not excessive. The Committee therefore agreed that the time commitment required of Non-executive Directors is consistent with the nature and size of the business. Review of the roles of Chairman and Chief Executive Officer In July 2018 the Committee reviewed the job descriptions for the Group Chairman and Chief Executive Officer in respect of their roles for both Record plc and Record Currency Management Limited previously approved by the Committee in 2017. The Committee agreed that the job descriptions remained fit for purpose and approved them accordingly. The Committee also acknowledged that Neil Record, Group Chairman and James Wood-Collins, Chief Executive Officer were performing their respective roles in accordance with these job descriptions. The job descriptions for the Group Chairman and the Chief Executive Officer will continue to be reviewed against the roles being performed on an annual basis. Significant Influence Function (“SIF”) competency reviews In September 2018 the Committee considered the competency review documents for 2018 completed in respect of the following individuals who hold significant influence function roles as defined by the FCA: • James Wood-Collins, Chief Executive Officer • Leslie Hill, Head of Client Team • Bob Noyen, Chief Investment Officer • Steve Cullen, Chief Financial Officer • Joel Sleigh, Chief Operating Officer • Dmitri Tikhonov, Managing Director • Grady Laurie, Head of Compliance and Risk • Kevin Ayles, Head of Human Resources The Committee acknowledged it was content with the SIF competency assessments made and that it had no concerns regarding the performance of any of the individuals reviewed. Extension of the appointment term for Jane Tufnell In September 2018 the Committee reviewed the extension of the appointment term for Jane Tufnell as a Non-executive Director following its expiry after the initial three year term, Jane having been appointed in September 2015. Jane was not present for this review. It was agreed that it was in the interest of both Record plc and Record Currency Management Limited that Jane be re-appointed on the same terms for a further period of three years, which may be extended further at the sole and absolute discretion of Record plc and Record Currency Management Limited. A recommendation was put to the Board accordingly and unanimously approved. 47 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationNOMINATION COMMITTEE REPORT CONTINUED Key Committee activities continued Board Committee Chairs Given David Morrison’s resignation in September 2018 the Committee considered who should chair each of the Board committees, effective 1 October 2018. The Committee agreed that, given his knowledge and experience, it would be appropriate for Tim Edwards to assume the role of Chair of the Remuneration Committee. The Committee also agreed that Rosemary Hilary continues to chair the Audit and Risk Committee and that Jane Tufnell continues to chair the Nomination Committee and both expressed their willingness to remain in these roles. Jane Tufnell put a recommendation to the Board accordingly and the Board gave its approval to the proposed Committee Chairs. Committee evaluation An internal review of Committee effectiveness was overseen by the Chair of the Committee in May 2019. The conclusion was that the Committee had been effective in carrying out its duties. Annual General Meeting The Committee has agreed that all Directors standing for re-election continue to make a valuable contribution to the Board’s deliberations and recommends their re-election. As required by the UK 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 2019 Notice of AGM. The Chair of the Nomination Committee will be available to answer any questions relating to the Committee and its activities at the AGM. Looking forward As well as considering its standing items of business, the Committee will continue to consider the required skillset for the Board going forward and will 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 12 June 2019 48 Record plc Annual Report 2019GovernanceAUDIT AND RISK COMMITTEE REPORT Rosemary Hilary Chair of the Audit and Risk Committee 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 controls 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; • 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; • 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. 49 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationAUDIT AND RISK COMMITTEE REPORT CONTINUED Membership of the Committee The Committee has been chaired by Rosemary Hilary since September 2016. Rosemary is supported by the other independent Directors: Jane Tufnell and Tim Edwards. David Morrison served on the Committee until his resignation as a Non-executive Director, effective 30 September 2018. Given her accounting and regulatory background the Board considers that Rosemary 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 38 and 39. 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 and the Committee membership has always satisfied this undertaking. Committee meetings The Committee met six times during the year ending 31 March 2019, being four quarterly meetings plus two additional meetings ahead of results announcements. All meetings were also attended by the Chief Executive Officer, the Head of Compliance and Risk, the Chief Financial Officer and the Chief Operating Officer. Representatives of the internal auditor were present at five of the meetings and the external audit partner and external audit director attended a total of five meetings. Two further meetings have been held since the year end. Committee member meeting attendance is detailed on page 42. 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 privately and in confidence to 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 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 2019 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 Matrix” 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; • 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 Risk Management Framework During the year the Committee supported and provided input to the work being undertaken by management to conduct a thorough review of risk management at Record in order to evolve the Group’s long-established risk management framework to better articulate risk appetite, clarify risk related processes, procedures and responsibilities and improve risk monitoring and reporting. The Committee welcomed this initiative, was impressed by the commitment of management to the project and was pleased with the output. Cyber security The Committee reviewed cyber risk defences in line with the UK’s National Cyber Security Centre (NCSC) “10 Steps to Cyber Maturity” framework. The Committee remains conscious that cyber security continues to present a significant risk to financial services companies and the monitoring and review of the cyber security processes implemented by Record will thus remain a focus for the Committee going forward. 50 Record plc Annual Report 2019GovernanceReplacement of the Head of IT Following the resignation of the Head of IT in July 2018 the Committee was provided with regular updates by the Chief Executive Officer and the Chief Operating Officer detailing the recruitment process and transition planning to ensure that IT-related projects were appropriately prioritised, cyber security practices were maintained and that the IT function was effectively managed. The Committee was content with the actions taken by management over the six month transition period. Review of the regulatory landscape Briefings on regulatory developments have been provided to the Committee over the period under review by Deloitte as internal auditor and also by the Head of Compliance and Risk. Topics included the Group’s readiness for GDPR, the Senior Manager and Certification Regime, MiFID II, FCA policy and discussion statements, FRC guidance and the Group’s preparations for managing Brexit. Regulatory change will continue to be closely monitored by the Committee for the foreseeable future. Compliance and risk Under the standing agenda item of compliance and risk the Committee considered and confirmed it was content with the following: • The compliance monitoring plan for 2019, noting that it 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 whistleblowing policy, updated to reflect minor housekeeping amendments. 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 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 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 the external auditor. The Committee has reviewed the narrative statements in the report and accounts to ensure they are fair, balanced and understandable 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, confirmed there were no significant issues or concerns to be addressed and recommended that it 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. Over the last twelve months management has developed a high-level “Risk Matrix” which identifies key risk areas that may impact the Group, replacing the graphical “Risk Heat Map” produced previously. 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 “Risk Matrix” continues to be enhanced to aid risk monitoring and such development is welcomed by the Committee. 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. More information on the Group’s risk management framework is given in the Strategic Report on 30 and 31. 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 reviewed and approved on an annual basis. The charter was last reviewed and approved by the Committee in May 2019. 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 thematic and risk-based reviews as agreed by the Committee, Deloitte and management. 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. 51 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationAUDIT AND RISK COMMITTEE REPORT CONTINUED Internal audit continued 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 PricewaterhouseCoopers LLP (“PwC”) was appointed in 2017 to conduct the external audit of the Record Group. The fees and the terms of the audit engagement letter are agreed by the Committee on an annual basis. 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. 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 and also the reperformance of fee calculations. 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. There were no significant adverse findings from the May 2019 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 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 2019 and it was agreed the policy remained appropriate and it was approved by the Committee accordingly. 52 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: • provision of other assurance services in respect of controls reports; • independent auditor report to the FCA on compliance with client asset rules; • 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 5 to the accounts. Non-audit fees, excluding audit-related assurance services required under law or regulation, were equivalent to 47% (2018: 48%) of audit fees and were therefore within the permitted cap of 70%. Assessment of external auditor independence The Committee was satisfied that the quantity and nature of non-audit work undertaken during the year did not impair PwC’s independence or objectivity and that its 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 2019. 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 continue to focus on the following areas during the year ahead: • cyber security; • risk monitoring; and • the regulatory landscape. Approved by the Committee and signed on its behalf by: Rosemary Hilary Chair of the Audit and Risk Committee 12 June 2019 Record plc Annual Report 2019GovernanceREMUNERATION REPORT Our remuneration policy is designed to act in the interests of all our key stakeholders: our clients, shareholders, employees and regulators. Tim Edwards Chair of the Remuneration Committee Remuneration Committee Chairman’s summary statement Introduction I am pleased to present my first Remuneration Report for 2019. I would like to thank David Morrison for his contribution during his nine years as a member of the Committee, most recently as Chairman. We believe that our Remuneration Policy, as approved by shareholders at our 2017 AGM, remains broadly appropriate, although we have made changes to the operation of our Group Profit Share Scheme with effect from 1 April 2019. These changes are within the Remuneration Policy framework and scheme rules but I have explained these changes further below. As required, the Company will put a Directors’ remuneration policy to shareholders at the 2020 AGM. Remuneration philosophy Our remuneration approach is driven by long-term thinking. Identifying, developing and appropriately compensating our high performers, at all levels of the business, is critical to long-term business success and aligned to clients’ and shareholders’ interests. Our key remuneration principles are to have: • A consistent remuneration structure for all employees, not just Executive Directors, which is transparent and straightforward, with a single profit share pool and share option scheme. • Two components of remuneration: (i) fixed salaries and (ii) variable remuneration based on performance. • A proportion of the remuneration of Executive Directors and senior managers deferred by paying some in the form of equity. Changes to the operation of the Group Profit Share Scheme The Committee has made changes to the operation of the Group Profit Share scheme which took effect from 1 April 2019 to ensure that there is a transparent link between our business strategy and individual objectives, that the assessment of individual performance is clear, and that variable pay rewards high levels of performance. To create business growth whilst managing costs we want to reward behaviour that drives revenue generation, improved efficiencies and reduced costs. Annual corporate objectives have been agreed by the Board and individual objectives have been agreed for all employees, including Executive Directors. Individual levels of performance will be assessed each six months against objectives and variable remuneration will be awarded based on achievement objectives. The Remuneration Committee will approve any payments to Executive Directors and management will approve payments to employees. The Group Profit Share Pool continues to be linked to profitability and can vary between 25% to 35% of operating profits. The Committee has not used this flexibility in the past, preferring to maintain the pool at 30%, but does intend to use this flexibility in future depending on the company’s performance. The Committee believes that these changes will drive business performance and reward high performers in a more transparent manner, within the existing Group Profit Share Scheme framework. 53 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationREMUNERATION REPORT CONTINUED Remuneration Committee Chairman’s summary statement continued Company performance and Directors’ remuneration The year to 31 March 2019 has seen growth in our revenue, increase in profit before tax and a marginal increase in operating margin. The decline in management fees was more than offset by the rise in performance fees. However, certain costs have risen as a result of investing in our people and resources to maintain innovation and service enhancement. Directors’ remuneration report This year’s report is split into two sections. We have not reproduced our full Remuneration Policy in this report but provided a summary in the table on pages 55 and 56. A copy of our full Directors’ Remuneration Policy, as approved by shareholders in July 2017, is available in the Remuneration Section of the 2017 Annual Report and Accounts, and is available on our website https://ir.recordcm.com/financial-information-and-reporting/ reports-and-accounts. The Annual report on remuneration explains how the policy has been implemented this year. 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 2019 AGM. Tim Edwards Remuneration Committee Chairman 12 June 2019 For the year to 31 March 2019 prior to the changes referred to above becoming effective, our Group Profit Share Scheme pool has been set at 30% of operating profits (2018: 30%), directly linking the Company’s financial performance to the size of the variable remuneration pool, so the value delivered to employees under the Group Profit Share Scheme increased by 8.5% over the period. With a focus on maintaining profitability and managing costs, no company-wide salary increases were made in April 2019 and none of the Executive Directors received any salary increase. 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. No share options were granted to Executive Directors during the period and each of their current share option holdings is detailed on page 60. Regulation We continue to review our remuneration structures in line with regulatory changes and good practice and have actively reviewed and updated the FCA policy statement. Committee membership and focus during the year The Remuneration Committee is comprised of the Non-executive Directors, namely Jane Tufnell, Rosemary Hilary, and myself, acting as Chairman. Our focus during the past year has been to review and make changes to the Group Profit Share Scheme, including approving objectives for Executive Directors. In addition the Committee has reviewed the FCA policy statement, reviewed external salary and remuneration benchmarks for all staff and approved salary, Group Profit Share payments and vesting of share options for Executive Directors. We have also taken into account employee views on remuneration through our employee survey. 54 Record plc Annual Report 2019GovernanceDirectors’ remuneration policy Remuneration Policy summary table This section of the remuneration report provides an overview of the key remuneration elements in place for all staff, including Executive Directors, the Chairman and Non-Executive Directors. We have not made any changes to our Remuneration Policy and the table summarises the policy approved by shareholders at the 2017 AGM. Element Current operation for employees Application to Executive Directors Base salary Fixed remuneration that reflects the role, responsibilities, experience and knowledge of the individual. Paid monthly and reviewed annually by management. Any review will take into account market rates, business performance and individual contribution. 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. 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. Application to the Chairman and Non‑executive Directors Salaries and fees are reviewed annually by the Board. Any review will take into account market rates, business performance and individual contribution. Increases are normally expected to be in line with the typical level of increase awarded across the Group. Benefits To provide a benefits package that provides for the wellbeing of our colleagues. Pension To provide an appropriate retirement income. Group Profit Share Scheme Variable remuneration scheme that allocates 25% to 35% of operating profits to a Group Profit Share Pool, allocated to participants based on their role and individual level of performance. 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. 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. All staff participate in the Group Profit Share Scheme. Staff members can take their profit share in cash or elect for up to a third in shares. 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. Executive Directors receive benefits on the same basis as all other employees. The Chairman receives benefits on the same basis as other employees. There is no maximum level of benefit. The Non-Executive Directors do not receive any additional benefits. Executive Directors receive an employer pension contribution of 15.5% of salary which can be paid into the Pension Scheme or delivered as a cash allowance. Executive Directors can choose to make a personal contribution in addition to the Company contribution. The Chairman is entitled to join the Pension Scheme, but has chosen to opt out and in line with the policy for Executive Directors receives the employer pension contribution of 15.5% of his salary as taxable income. The Non-executive Directors do not receive pension benefits. The Chairman and the Non-executive Directors do not participate in the Group Profit Share Scheme. Executive Directors are eligible to participate in the Group Profit Share Scheme and 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. 55 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationREMUNERATION REPORT CONTINUED Directors’ remuneration policy continued Remuneration Policy summary table continued Application to the Chairman and Non‑executive Directors The Chairman and the Non-executive Directors do not participate in the Share Scheme. Current operation for employees Application to Executive Directors All staff members are eligible to participate in the Share Scheme. Executive Directors are eligible to participate in the Share Scheme. Any share option grants are awarded by management on a discretionary basis. 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. All staff members are eligible to participate in the SIP. Executive Directors may participate in the SIP on the same basis as other employees. The Chairman and the Non-executive Directors do not participate in the SIP. Element Share Scheme 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. Share Incentive Plan 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 2019), which is matched at a rate of 50%. 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. 56 Record plc Annual Report 2019Governance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, certain questions in the employee survey this year were specifically about remuneration and this allowed the Committee to gain feedback from staff. 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. Non-executive Directors are appointed for an initial three-year period. Their continued engagement is subject to annual re-election by shareholders at the Company’s AGM. 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. 57 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationREMUNERATION REPORT CONTINUED Directors’ remuneration policy continued 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 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% £331,155 Minimum 100% £331,594 3 year low 3 year high 3 year average 51% 48% 49% 49% £655,723 52% £689,019 51% £674,265 3 year low 3 year high 3 year average 51% 48% 49% £656,128 52% £689,458 49% 51% £674,678 £ 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% £332,273 Minimum 100% £152,118 3 year low 3 year high 3 year average 48% 40% 44% 52% £690,137 60% £818,973 56% £743,916 3 year low 3 year high 3 year average 63% 37% £235,238 58% 42% £256,522 61% 39% £245,617 £ 0 100k 200k 300k 400k 500k 600k 700k 800k 900k 1,000k £ 0 100k 200k 300k 400k 500k 600k 700k 800k 900k 1,000k 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. 58 Record plc Annual Report 2019Governance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 2019 AGM. The information on pages 59 to 65 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 2019 is detailed below together with their remuneration for the previous year. Executive Directors Salaries and fees Benefits1 James Wood-Collins Leslie Hill Bob Noyen Steve Cullen 2019 £ 2018 £ 2019 £ 2018 £ 2019 £ 2018 £ 2019 £ 2018 £ 285,913 285,913 285,913 285,913 285,913 285,913 129,997 126,210 926 912 2,044 1,908 1,365 1,317 1,971 1,946 36,101 50,089 20,892 Short-term incentive (GPS cash) 238,576 216,388 238,576 163,563 238,576 216,388 61,981 Short-term incentive (GPS-shares)2 119,288 108,194 119,288 226,939 119,288 108,194 30,991 Pensions3 Total 44,316 44,316 44,316 44,316 44,316 44,316 20,150 689,019 655,723 690,137 722,639 689,458 656,128 245,090 235,238 Neil Record Jane Tufnell Rosemary Hilary Tim Edwards (appointed 21 March 2018) David Morrison (resigned 30 September 2018) Non-executive Directors 2019 £ 2018 £ 2019 £ 2018 £ 2019 £ 2018 £ 2019 £ 2018 £ 2019 £ 2018 £ Salaries and fees Benefits1 79,310 79,310 53,498 42,230 49,862 48,410 43,497 7,038 31,827 61,800 2,258 2,137 Pensions3 12,293 12,293 — — — — — — — — — — — — — — 240 — Total 93,861 93,740 53,498 42,230 49,862 48,410 43,497 7,038 31,827 62,040 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. Payments made to former Directors Andrew Sykes, a former Non-executive Director, received £1,000 for consultancy services in the year ended 31 March 2019. No payments were made to David Morrison following his resignation in September 2018. 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 for the relevant six month period. The Committee also receives 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 2019, 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 2018 and 31 March 2019 are detailed in the tables above. 59 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information REMUNERATION REPORT CONTINUED Annual report on remuneration continued Directors’ share options and share awards (audited information) During the financial year ended 31 March 2019 no option awards were made to any Executive Directors. 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 2018 Options granted in period Date of grant James 18/11/13 466,667 Wood-Collins 27/11/14 420,000 01/12/15 450,000 27/01/16 100,000 30/11/16 550,000 26/01/18 1,300,000 Leslie Hill 27/11/14 420,000 01/12/15 450,000 27/01/16 100,000 30/11/16 550,000 26/01/18 280,000 Bob Noyen 27/11/14 420,000 01/12/15 450,000 27/01/16 100,000 30/11/16 550,000 26/01/18 280,000 Steve Cullen 27/11/14 180,000 01/12/15 450,000 27/01/16 100,000 30/11/16 550,000 26/01/18 125,000 — — — — — — — — — — — — — — — — — — — — — Options lapsed in period (350,000) (210,000) (150,000) (33,333) — — (210,000) (150,000) (33,333) — — (210,000) (150,000) (33,333) — — (90,000) (150,000) (33,333) — — Options exercised in period — — — — — — — — — — — — — — — — — — — — — Total options at 31 March 2019 116,667 210,000 Exercise price Earliest Exercise Latest exercise 30.00p 18/11/17 17/11/19 35.86p 27/11/17 26/11/20 300,000 28.875p 01/12/18 30/11/21 66,667 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 25/01/24 210,000 35.86p 27/11/17 26/11/20 300,000 28.875p 01/12/18 30/11/21 66,667 24.50p 27/01/19 26/01/22 550,000 34.0718p 30/11/19 29/11/22 280,000 210,000 43.50p 26/01/21 25/01/24 35.86p 27/11/17 26/11/20 300,000 28.875p 01/12/18 30/11/21 66,667 24.50p 27/01/19 26/01/22 550,000 34.0718p 30/11/19 29/11/22 280,000 43.50p 26/01/21 25/01/24 90,000 35.86p 27/11/17 26/11/20 300,000 28.875p 01/12/18 30/11/21 66,667 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 61. There were no gains on share options by directors in the year ended 31 March 2019. James Wood-Collins had a gain on share options of £39,872 in the year ended 31 March 2018. No other directors had gains on share options. 60 Record plc Annual Report 2019Governance 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 Deferred tax liabilities Total net assets Equity Issued share capital Share premium account Capital redemption reserve Retained earnings Equity attributable to owners of the parent Non-controlling interests Total equity Approved by the Board on 12 June 2019 and signed on its behalf by: Neil Record Chairman Company registered number: 1927640 Steve Cullen Chief Financial Officer The notes on pages 83 to 110 are an integral part of these consolidated financial statements. Note 12 11 13 14 15 16 17 17 18 18 19 16 20 2019 £’000 288 761 1,112 — 2,161 7,562 164 10,735 12,966 31,427 33,588 2018 £’000 228 910 1,115 86 2,339 6,775 266 10,198 12,498 29,737 32,076 (2,736) (2,630) (692) (399) (2,621) (2,467) (109) (29) (6,158) (5,525) (29) — 27,401 26,551 50 2,243 26 25,022 27,341 60 50 2,237 26 24,238 26,551 — 27,401 26,551 77 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended 31 March 2019 Called up share capital £’000 50 — — — — — — — 50 Share premium account £’000 2,237 — — — — 6 — 6 2,243 Capital redemption reserve £’000 Retained earnings £’000 Equity attributable to equity holders of the parent £’000 Non‑ controlling interests £’000 26 — — — — — — — 26 24,238 26,551 6,430 (5,517) — (893) 677 87 6,430 (5,517) — (893) 683 87 (5,646) (5,640) 25,022 27,341 — — — 60 — — — 60 60 Total equity £’000 26,551 6,430 (5,517) 60 (893) 683 87 (5,580) 27,401 As at 1 April 2018 Profit and total comprehensive income for the year Dividends paid Issue of shares in subsidiary Own shares acquired by EBT Release of shares held by EBT Share-based payment reserve movement Transactions with shareholders As at 31 March 2019 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 Called up share capital £’000 55 — — (5) — — — (5) 50 Share premium account £’000 1,971 — — — — 266 — 266 2,237 Capital redemption reserve £’000 20 — — 6 — — — 6 26 Retained earnings £’000 Total equity £’000 34,785 36,831 6,146 (6,810) (10,000) (952) 1,241 (172) 6,146 (6,810) (9,999) (952) 1,507 (172) (16,693) (16,426) 24,238 26,551 The notes on pages 83 to 110 are an integral part of these consolidated financial statements. 78 Record plc Annual Report 2019Financial 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 (Purchase)/sale of money market instruments with maturity > 3 months Interest received Net cash (outflow)/inflow from investing activities Cash flow from financing activities Subscription for shares in subsidiary Purchase of own shares Dividends paid to equity shareholders Cash outflow from financing activities Net increase/(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 The notes on pages 83 to 110 are an integral part of these consolidated financial statements. Note 25 2019 £’000 7,026 (134) (72) (537) 110 (633) 2018 £’000 2,746 (82) (236) 7,904 77 7,663 40 — (653) (10,367) 9 (5,517) (6,810) (6,130) (17,177) 263 205 12,498 12,966 2,150 10,816 12,966 (6,768) 146 19,120 12,498 4,411 8,087 12,498 17 79 Record plc Annual Report 2019Strategic 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 13 17 18 18 20 2019 £’000 5,567 5,567 3 3 2018 £’000 5,288 5,288 2 2 5,570 5,290 (55) (14) (69) 5,501 50 1,809 26 3,616 5,501 (1,093) — (1,093) 4,197 50 1,809 26 2,312 4,197 The Company’s total comprehensive income for the year (which is principally derived from intra-group dividends) was £6,681,076 (2018: £16,688,038). Approved by the Board on 12 June 2019 and signed on its behalf by: Neil Record Chairman Company registered number: 1927640 Steve Cullen Chief Financial Officer The notes on pages 83 to 110 are an integral part of these consolidated financial statements. 80 Record plc Annual Report 2019Financial statements COMPANY STATEMENT OF CHANGES IN EQUITY Year ended 31 March 2019 As at 1 April 2018 Profit and total comprehensive income for the year Dividends paid Share option reserve movement Transactions with shareholders As at 31 March 2019 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 Called up share capital £’000 50 — — — — 50 Called up share capital £’000 55 — (5) — — (5) 50 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 26 — — — — 26 2,312 6,681 4,197 6,681 (5,517) (5,517) 140 140 (5,377) (5,377) 3,616 5,501 Capital redemption reserve £’000 20 — 6 — — 6 26 Retained earnings £’000 2,237 16,688 (10,000) (6,810) 197 Total shareholders’ equity £’000 4,121 16,688 (9,999) (6,810) 197 (16,613) (16,612) 2,312 4,197 The notes on pages 83 to 110 are an integral part of these consolidated financial statements. 81 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information COMPANY STATEMENT OF CASH FLOWS Year ended 31 March Net cash (outflow)/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 83 to 110 are an integral part of these consolidated financial statements. Note 25 2019 £’000 (1,043) 2018 £’000 1,015 6,600 16,810 (40) — 1 (16) (1,000) 1 6,561 15,795 — (10,000) 9 (5,517) (6,810) (5,517) (16,810) 1 2 3 3 — 3 — 2 2 2 — 2 17 82 Record plc Annual Report 2019Financial statements NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 March 2019 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 blue 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 2019. 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 68 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. Impact of new accounting standards IFRS 9 – Financial Instruments IFRS 9 has been adopted by the Group and Company from the mandatory adoption date of 1 April 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. The Group holds instruments such as investments in seed funds, derivative financial instruments and financial liabilities in respect of external investors’ holdings in consolidated funds. These were formerly held at fair value through profit or loss (FVTPL). Under the new standard, these instruments will continue to be held at FVTPL. Trade and other receivables and payables principally comprise short-term settlement accounts and accruals, which are not held for trading nor do they meet the definition of items that could be carried at fair value. Such instruments therefore remain at amortised cost. Regarding impairment, most of Record’s revenue comes from management fees due from clients for which we provide currency management services. These are typically paid to the Group on a quarterly basis. It is very rare for Record to suffer any impairment in respect of trade receivables as institutional debtors rarely default. The Group has applied the simplified expected loss model to its trade receivables, which do not have a history of credit risk or expected future recoverability issues. Further details of the expected credit loss calculation are given in note 15. Cash, cash equivalents and money market instruments with maturities > 3 months held with banks could be at risk should the financial institutions holding it fail. We have neither experienced nor expect to experience credit losses arising from these counterparties. Management considers that the adoption of IFRS 9 has not had a material impact on the financial statements. IFRS 15 – Revenue from Contracts with Customers IFRS 15 replaces IAS 18 Revenue and provides a new five-step revenue recognition model for determining recognition and measurement of revenue from contracts with customers. The adoption of this standard has had no significant impact on the timing of revenue recognition of the Group and therefore no restatement of prior periods was required. The Group did not use any of the practical expedients permitted under IFRS 15. The Group’s accounting policy for revenue within the scope of IFRS 15 has been updated to state that revenue is recognised as performance obligations are satisfied. The standard introduces a number of new disclosure requirements which are provided in note 4 of these financial statements. These include disclosures around: • The nature of the performance obligations within contracts with customers. • Disaggregated revenue and its relationship with revenue reported for each reportable segment. • Contract asset and liabilities. There are no judgements that significantly affect the determination of the amount and timing of revenue from contracts with customers. Revenue from contracts with customers for the year ended 31 March 2018 consisted of £23.5 million which was previously presented as fee income, and £0.3 million that was previously presented as other currency services income. 83 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationNOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 1. Accounting policies continued a. Accounting convention continued Impact of new accounting standards continued IFRS 15 – Revenue from Contracts with Customers continued There has been no other new or amended standards adopted in the financial year beginning 1 April 2018 which 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 16 – Leases IFRS 16 “Leases” 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. IFRS 16 requires operating leases, where the Group is the lessee, to be included on the Group’s statement of financial position, recognising a right-of-use (ROU) asset and a related lease liability representing the present value obligation to make lease payments. 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 statement of financial position. The operating lease expense which is currently recognised within occupancy costs in the Group’s income statement (note 24) 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 adoption of IFRS 16 into the Group’s opening statement of financial position on 1 April 2019 results in a gross-up of £1.7 million for ROU lease assets and associated deferred tax assets and £1.8 million in relation to lease liabilities, with £0.1 million deducted from brought-forward reserves on the transition date 1 April 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. 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 2019. 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. Significant judgement The Group uses judgement to determine whether investments in its seed funds, constitute controlling interests in accordance with IFRS 10 Consolidated Financial Statements. The Group considers all relevant facts and circumstances in assessing whether it has control over specific funds or other entities. This includes consideration of the extent of the Group’s exposure to variability of returns as an investor and the Group’s ability to direct the relevant activities, through exercising its voting rights as an investor, or as investment manager. 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. If the Group is in a position to be able to control a fund, then the fund is consolidated within the Group financial statements. 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. 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 investors are 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 2019 and the financial position of the seeded funds as at 31 March 2019. 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 £6,681,076 attributable to the Company (2018: £16,688,038). All intra-Group transactions, balances, income, expenses and dividends are eliminated on consolidation. 84 Record plc Annual Report 2019Financial statementsForeign currencies c. 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 the statement of comprehensive income under “other income or expense”. Financial instruments d. 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. Provisions and contingent liabilities f. 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 In order to prepare the financial statements in accordance with IFRS, management make certain critical accounting estimates. Management are also required to exercise judgement in the process of applying the Group’s accounting policies and in determining the reported amount of certain assets and liabilities. The estimates and associated assumptions are based on historical experience and various other factors including expectations of future events 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. As a consequence 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. Areas of significant judgement – consolidation of seed funds Note 1.b. describes the basis which the Group uses to determine whether it controls seed funds, further detail on consolidation of seed funds is provided in note 13. Sources of estimation uncertainty Management recognise that the use of estimates is important in calculating both the fair value of share options offered by the Group to its employees (see note 21) and deferred tax (see note 14), however the sources of estimation uncertainty do not present a significant risk of material adjustment to the carrying amounts of assets or liabilities within the next financial year in either case. 85 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional informationNOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 3. 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. Revenue analysed by product is provided in note 4. 4. Revenue Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the provision of currency management services. Our revenues typically arise from charging management fees or performance fees and both are accounted in accordance with IFRS 15 “Revenue from contracts with customers”. Management fees are recorded on a monthly basis as the underlying currency management service occurs, there are no other performance obligations (excluding standard duty of care requirements). Management fees are calculated as an agreed percentage of the assets under management equivalents (“AUME”) denominated in the client’s chosen base currency. The percentage varies depending on the nature of services and the level of AUME. Management fees are typically invoiced to the customer quarterly with receivables recognised for unpaid invoices. The Group is entitled to earn performance fees from some clients where the performance of the clients’ mandates exceeds defined benchmarks over a set time period, and are recognised when the fee amount can be estimated reliably and it is highly probable that it will not be subject to significant reversal. 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. a. Revenue from contracts with customers The following table provides a breakdown of revenue from contracts with customers, with management fees analysed 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 from contracts with customers 2019 £’000 2018 £’000 4,598 11,610 1,775 4,325 5,111 12,569 1,803 4,014 22,308 23,497 2,333 332 — 337 24,973 23,834 b. Contract receivables The payment terms for invoiced revenue vary but are typically 30 days from receipt of invoice. Accrued income is recognised to account for income earned but not yet invoiced. The Group has recognised the following receivables, assets and liabilities in relation to contracts with customers. Amount receivable from contracts with customers Accrued income from contracts with customers Total contract receivables and assets There are no contract liabilities arising in relation to contracts with customers. 2019 £’000 4,654 1,888 6,542 2018 £’000 5,279 582 5,861 86 Record plc Annual Report 2019Financial statements c. 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 revenue 2019 £’000 2018 £’000 2,239 6,439 11,401 4,894 24,973 2,951 6,610 10,434 3,839 23,834 d. Major clients During the year ended 31 March 2019, three clients individually accounted for more than 10% of the Group’s revenue. The three largest clients generated revenues of £4.4 million, £3.9 million and £3.6 million in the year (2018: three largest clients generated revenues of £4.0 million, £3.4 million and £2.9 million in the year). 5. 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 for the audit of consolidated funds Auditor fees total Fees payable to the Group’s auditor and its associates for other services: Audit-related assurance services required by law or regulation Other non-audit services Operating lease rentals: land and buildings Loss/(gain) on forward FX contracts held to hedge cash flow Gain on derivative financial instruments held by seed funds Exchange (gains)/losses on revaluation of external holding in seed funds Other exchange (gains)/losses 2019 £’000 2018 £’000 11,574 11,062 221 74 49 42 40 131 27 61 604 242 — (67) (178) 206 99 45 39 32 116 26 55 596 (424) (53) 406 265 87 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 6. 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 2019 2018 9 16 15 26 5 14 85 2019 £’000 8,900 1,239 468 967 8 15 15 26 5 12 81 2018 £’000 8,280 1,184 432 1,166 11,574 11,062 Other employment benefit costs include share-based payments, share option costs, and costs relating to the Record plc Share Incentive Plan. 7. 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% (2018: 19%) 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 in respect of prior years Other temporary differences Total tax expense The tax expense comprises: Current tax expense Deferred tax expense Total tax expense 2019 £’000 7,989 1,518 16 (20) 10 2 (93) 126 2018 £’000 7,328 1,392 51 (20) 5 (10) (240) 4 1,559 1,182 1,445 114 1,559 1,166 16 1,182 The standard rate of UK corporation tax for the year is 19% (2018: 19%). 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 2019 was 19.5% of profit before tax (2018: 16.1%). 88 Record plc Annual Report 2019Financial statements 8. 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 2019 2018 196,655,224 202,613,441 1,462,554 3,855,924 Weighted average number of shares used in calculation of diluted earnings per share 198,117,778 206,469,365 Basic earnings per share Diluted earnings per share pence 3.27 3.25 pence 3.03 2.98 The potential dilutive shares relate to the share options granted in respect of the Group’s Share Scheme (see note 21). There were share options in place at the beginning of the year over 14,343,147 shares. During the year 678,500 share options were exercised, and a further 2,307,944 share options lapsed or were forfeited. The Group granted 935,000 share options with a potentially dilutive effect during the year. Of the 12,291,703 share options in place at the end of the period, 1,486,765 have a dilutive impact at the year end. 9. 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 2019 totalled £5,516,896 (2.80 pence per share) which comprised a final dividend in respect of the year ended 31 March 2018 of £2,266,379 (1.15 pence per share), a special dividend in respect of the year ended 31 March 2018 of £985,382 (0.50 pence per share) and an interim dividend for the year ended 31 March 2019 of £2,265,135 (1.15 pence per share). 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). For the year ended 31 March 2019, a final ordinary dividend of 1.15 pence per share has been proposed and a special dividend of 0.69 pence per share has been declared. 10. 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 disclosed in note 6 to the accounts represents contributions payable by the Group to the funds. 89 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 11. 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 £’000 661 31 — 692 150 121 — 271 421 511 671 40 — 711 425 59 — 484 227 246 324 1 — 325 171 41 — 212 113 153 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 Total £’000 1,656 72 — 1,728 746 221 — 967 761 910 Total £’000 1,481 236 (61) 1,656 600 206 (60) 746 910 881 2019 Cost At 1 April 2018 Additions Disposals At 31 March 2019 Depreciation At 1 April 2018 Charge for the year Disposals At 31 March 2019 Net book amounts At 31 March 2019 At 1 April 2018 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 The Group’s tangible non-current assets are predominantly located in the UK. 90 Record plc Annual Report 2019Financial statements 12. 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 comprise both purchased software and the capitalised cost of software development. The carrying amounts can be analysed as follows: 2019 Cost At 1 April 2018 Additions Disposals At 31 March 2019 Amortisation At 1 April 2018 Charge for the year Disposals At 31 March 2019 Net book amounts At 31 March 2019 At 1 April 2018 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 Software £’000 Total £’000 1,458 1,458 134 — 134 — 1,592 1,592 1,230 1,230 74 — 74 — 1,304 1,304 288 228 Software £’000 288 228 Total £’000 1,377 1,377 82 (1) 82 (1) 1,458 1,458 1,132 1,132 99 (1) 99 (1) 1,230 1,230 228 245 228 245 The annual contractual commitment for the maintenance and support of software is £183,976 (2018: £179,664). All amortisation charges are included within administrative expenses. 91 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 13. 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 Trade Record Ltd Record Fund Management Limited N P Record Trustees Limited Total investment in subsidiaries (at cost) Capitalised investment in respect of share‑based payments Record Group Services Limited Record Currency Management (US) Inc. Record Currency Management (Switzerland) GmbH Total capitalised investment in respect of share‑based payments Total investment in subsidiaries Particulars of subsidiary undertakings Name Nature of business 2019 £’000 2018 £’000 10 10 10 — 16 40 — — 86 1,108 85 2 1,195 1,281 10 10 10 — 16 — — — 46 978 77 — 1,055 1,101 Record Currency Management Limited Currency management services (FCA, SEC and CFTC registered) Record Group Services Limited Management services to other Group undertakings Record Currency Management (US) Inc. US advisory and service company (SEC and CFTC registered) Record Currency Management (Switzerland) GmbH Swiss advisory and service company Trade Record Ltd Record Portfolio Management Limited Record Fund Management Limited N P Record Trustees Limited Prize competition allowing subscribers to trade virtual money across asset classes Dormant 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 except for Trade Record Ltd (“Trade Record”) in which the Group’s interest is 40% of the ordinary share capital. 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). Trade Record is registered in England and Wales with its registered office at 1 Poultry, London EC2R 8JR. All other subsidiaries are registered in England and Wales with their registered office at Morgan House, Madeira Walk, Windsor, Berkshire, SL4 1EP, UK. 92 Record plc Annual Report 2019Financial statements Investment in Trade Record On 22 March 2019, Record plc subscribed £40,000 for 40% of the ordinary share capital of Trade Record. 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. All four fund investments are presented within investments in the Company statement of financial position, and all four fund entities are sub-funds of the Record Umbrella Fund, an open-ended umbrella unit trust authorised in Ireland. Group Entities are consolidated on a line-by-line basis where the Group has determined that a controlling interest exists through an investment holding in the entity, in accordance with IFRS 10 “Consolidated Financial Statements”. Otherwise, investments in entities are measured at fair value through profit or loss. Investment in Trade Record Record plc in conjunction with two of its Directors, controls 80% of the ordinary share capital, giving the Company rights over variable returns and the power to affect returns. Therefore the Company has the ability to control Trade Record, which is consequently recognised as a subsidiary. In accordance with IFRS 10, the financial results of Trade Record are consolidated on a line-by-line basis within the financial statements of the Group. Investment in funds Of the four funds seeded by Record plc only three have been consolidated into the Group’s financial results. 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 2019 and the comparative year. Both funds 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. The fair value of the Group’s holding in the Record Currency – Emerging Market Currency Fund was recognised as an investment from 22 March 2018 onwards. 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. 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 investment in funds Group Company 2019 £’000 2018 £’000 — — 1,112 1,115 — — — — 1,112 1,115 2019 £’000 1,162 1,112 1,046 966 4,286 2018 £’000 1,116 1,115 952 1,004 4,187 93 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 14. 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 to income statement in year Asset brought forward (Liability)/asset carried forward The deferred tax (liability)/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 2019 £’000 (115) 86 (29) 2019 £’000 6 (35) (29) 2018 £’000 (16) 102 86 2018 £’000 98 (12) 86 At the year end there were share options not exercised with an intrinsic value for tax purposes of £44,534 (2018: £945,864). 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. 15. Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less loss allowances. The amortised cost of trade and other receivables is stated at 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. The Group applies the IFRS 9 simplified approach to measuring expected credit losses (ECLs) for trade receivables at an amount equal to lifetime ECLs. The ECLs on trade receivables are calculated based on actual historic credit loss experience over the preceding 10 years on the total balance of non-credit impaired trade receivables. Accrued income relates to accrued management and performance fees earned but not yet invoiced. An analysis of the Group’s receivables is provided below: Trade receivables Accrued income Other receivables Prepayments Total 2019 £’000 4,654 1,888 108 912 2018 £’000 5,279 582 56 858 7,562 6,775 All amounts are short term. The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. The Group has not renegotiated the terms of any receivables in the year ended 31 March 2019. The Group’s trade receivables are generally short-term and do not contain significant financing components. Therefore, the Group has applied a simplified approach by using a provision matrix to calculate lifetime expected credit losses based on actual credit loss experience. The Group has calculated lifetime expected credit losses to be £nil, which is consistent with the last 25 years history of credit risk and reflects expected future recoverability issues. 94 Record plc Annual Report 2019Financial statements 16. 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 for trading Total 2019 £’000 106 58 164 2019 £’000 (109) (109) 2018 £’000 199 67 266 2018 £’000 (29) (29) Derivative financial instruments held to hedge non-sterling based assets At 31 March 2019 there were outstanding contracts with a principal value of £5,940,246 (31 March 2018: £9,951,185) 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 2019. 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 (loss)/gain on forward foreign exchange contracts at fair value through profit or loss 2019 £’000 (242) 2018 £’000 424 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 Fund, 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 2019 there were outstanding contracts with a principal value of £24,323,080 (31 March 2018: £15,012,327). 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 2019 £’000 — 2018 £’000 53 95 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 17. 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 2019 £’000 10,735 — 2018 £’000 9,698 500 Money market instruments with maturities > 3 months 10,735 10,198 2019 £’000 2018 £’000 — — — 3 — 3 3 — — — 2 — 2 2 2,150 10,816 12,966 23,701 4,411 8,087 12,498 22,696 Group Company 2019 £’000 10,624 2,180 73 89 2018 £’000 3,827 2,680 4,610 1,381 12,966 12,498 2019 £’000 2018 £’000 3 — — — 3 2 — — — 2 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 13 for explanation of accounting treatment). As at 31 March 2019, the cash and cash equivalents held by the seed funds over which the Group had control totalled £5,107,670 (31 March 2018: £4,969,231) and the money market instruments with maturities > 3 months held by these funds were £675,577 (31 March 2018: £500,000). As at 31 March 2019, the cash and cash equivalents held by Trade Record over which the Group had control was £80,000 (31 March 2018: £nil). At 31 March 2019, Trade Record did not hold any money market instruments with maturities > 3 months (2018: £nil). 96 Record plc Annual Report 2019Financial statements 18. 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 2019 £’000 294 — 4 257 2,181 2,736 2018 £’000 325 — 4 234 2,067 2,630 2019 £’000 — 55 — — — 55 The Directors consider that the carrying amount of trade and other payables approximates to their fair value. Current tax liabilities Corporation tax Group Company 2019 £’000 692 2018 £’000 399 2019 £’000 14 2018 £’000 — 1,093 — — — 1,093 2018 £’000 — 19. 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 2019. 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 current and prior years. Similarly, the Record Currency – Strategy Development Fund is considered to be under control of the Group as Record plc has had a 100% holding throughout both years. 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 as the combined holding of Record plc and its Directors has constituted a majority interest since inception. 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 – FTSE FRB10 Index Fund Record – Currency Multi-Strategy Fund Record Currency – Strategy Development Fund Total financial liabilities 2019 £’000 479 2,142 — 2,621 2018 £’000 459 2,008 — 2,467 The financial liabilities relate only to the fair value of the external investors’ holding in the seed funds, and are in no sense debt. 97 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 20. 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 2019 2018 £’000 Number £’000 Number 100 400,000,000 100 400,000,000 50 199,054,325 50 199,054,325 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 2017 Adjustment for net sales by EBT Record plc shares held by EBT as at 31 March 2018 Adjustment for net purchases by EBT Record plc shares held by EBT as at 31 March 2019 Number 3,618,995 (1,225,563) 2,393,432 592,604 2,986,036 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 21. 21. Share-based payments During the year ended 31 March 2019 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. 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 £804,422 (2018: £682,758). 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. 98 Record plc Annual Report 2019Financial statements 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 for the year ended 31 March 2018 was £141,078. From 1 October 2017, as a result of changes to the Group Profit Share Scheme, Matching Shares are no longer awarded by the group and therefore the charge to profit or loss in respect of Matching Shares for the year ended 31 March 2019 was £nil. 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 and 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 tax-unapproved (“Unapproved”) options to employees and Directors and Part 2 allows the grant of HMRC tax-approved (“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 935,000 shares were granted under the Share Scheme during the year (2018: 3,975,000), of which 370,000 were made subject to Unapproved options and 565,000 to Approved options (2018: 2,261,000 made subject to Unapproved options and 1,714,000 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 565,000 Approved options issued to employees on 29 March 2019 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 370,000 Unapproved options issued to employees on 29 March 2019 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 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 2019 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 28.3p 28.3p 36% 3.4 years 1.03% The Group share-based payment expense in respect of the Share Scheme was £140,236 for the year ended 31 March 2019 (2018: £197,740). 99 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 The Record plc Share Scheme continued 21. Share-based payments continued b. Outstanding share options At 31 March 2019, the total number of ordinary shares of 0.025p outstanding under Record plc share compensation schemes was 12,291,703 (2018: 14,343,147). These deferred share awards and options are over issued shares, a proportion of which are hedged by shares held in an EBT. Details of outstanding share options awarded to employees are set out below: Granted Exercised Lapsed/ At 31 March 2019 forfeited Earliest vesting date Latest vesting date1 Exercise price Date of grant 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 29/03/19 29/03/19 At 1 April 2018 466,667 1,440,000 228,000 744,500 1,800,000 918,750 685,209 327,500 72,500 288,574 1,117,500 2,200,000 78,947 1,662,000 328,000 52,000 1,933,000 — — — — — — — — — — — — — — — — — — — — (350,000) 116,667 18/11/16 18/11/18 £0.3000 (720,000) 720,000 26/11/17 26/11/19 £0.3586 (114,000) 114,000 24/03/19 24/03/19 £0.3450 (372,250) (37,500) 334,750 24/03/16 24/03/19 £0.3450 — (600,000) 1,200,000 01/12/18 01/12/20 £0.2888 (306,250) (50,000) 562,500 27/01/17 27/01/20 £0.2450 — — — — — — — — — — — — — (27,612) 657,597 27/01/20 27/01/20 £0.2450 (109,166) 218,334 27/01/19 27/01/21 £0.2450 (24,166) 48,334 27/01/19 27/01/21 £0.2450 — 288,574 30/11/20 30/11/20 £0.34072 (75,000) 1,042,500 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 (200,500) 1,461,500 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 565,000 29/03/23 29/03/24 £0.2830 370,000 29/03/20 29/03/24 £0.2830 — — 565,000 370,000 Total options 14,343,147 935,000 (678,500) (2,307,944) 12,291,703 Weighted average exercise price of options £0.35 £0.28 £0.30 £0.33 £0.35 1. Under the terms of the deeds of grants, options are exercisable for twelve months following the vesting date. During the year 678,500 options were exercised. The weighted average share price at date of exercise was £0.41. At 31 March 2019 a total of 1,276,167 options had vested and were exercisable. 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 100 Ordinary shares held as at 31 March 2019 31 March 2018 318,832 375,408 802,837 1,008,518 318,832 324,614 264,286 361,076 2,426,667 3,286,667 1,406,667 1,800,000 1,406,667 1,800,000 1,131,667 1,405,000 Record plc Annual Report 2019Financial statements 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 Total financial assets 2019 £’000 4,654 1,888 108 164 10,735 12,966 30,515 2018 £’000 5,279 582 56 266 10,198 12,498 28,879 102 Record plc Annual Report 2019Financial statements 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 2019 Trade receivables Accrued income Total At 31 March 2018 Trade receivables Accrued income Total Carrying amount £’000 Neither impaired nor past due £’000 0‑3 months past due £’000 More than 3 months past due £’000 4,654 1,888 6,542 Carrying amount £’000 5,279 582 5,861 4,369 1,888 6,257 96% 285 — 285 4% — — — 0% Neither impaired nor past due £’000 0-3 months past due £’000 More than 3 months past due £’000 4,551 582 5,133 88% 726 — 726 12% 2 — 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 57 debtors’ balances (2018: 52). The largest individual debtor corresponds to 19% of the total balance (2018: 18%). Debtor days, based on the generally accepted calculation of debtor days, is 68 days (2018: 81 days). This reflects the quarterly billing cycle used by the Group for the vast majority of its fees. As at 31 March 2019, 4.4% of debt was overdue (2018: 12.4%). 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 21 days (2018: 22 days). Contractual maturity analysis for financial liabilities: At 31 March 2019 Trade payables Accruals Derivative financial liabilities Total At 31 March 2018 Trade payables Accruals Derivative financial liabilities Total Carrying amount £’000 294 2,181 109 2,584 Carrying amount £’000 325 2,067 29 2,421 Due or due Due between Due between 3 months in less than and 1 year 1 month £’000 £’000 1 and 3 months £’000 294 40 33 367 — 1,041 76 1,117 — 1,100 — 1,100 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 25 514 — 838 4 842 — 1,065 — 1,065 103 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 22. Financial risk management continued 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. Fixed rate Floating rate £’000 £’000 No interest rate £’000 Total £’000 4,654 1,888 108 164 10,735 12,966 30,515 4,654 1,888 108 164 — — 6,814 (294) (294) (2,181) (2,181) (109) (2,621) (5,205) No interest rate £’000 (109) (2,621) (5,205) Total £’000 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) — — — — 10,735 10,816 21,551 — — — — — — — — — — 2,150 2,150 — — — — — Fixed rate £’000 Floating rate £’000 — — — — 10,198 8,087 18,285 — — — — — — — — — — 4,411 4,411 — — — — — Interest rate profiles At 31 March 2019 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 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 104 Record plc Annual Report 2019Financial statements 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. 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 2019, the Group invoiced the following amounts in currencies other than sterling: Swiss franc (CHF) US dollar (USD) Euro (EUR) Canadian dollar (CAD) Australian dollar (AUD) Swedish krona (SEK) Singapore dollar (SGD) Local currency value ‘000 Value in reporting currency £’000 13,454 10,440 9,428 3,349 660 390 1,161 31 7,247 2,961 383 215 99 18 21,363 The value of revenues for the year ended 31 March 2019 that were denominated in currencies other than sterling was £21.4 million (31 March 2018: £20.1 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 17), 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 2019 £’000 346 (346) 565 (565) 2018 £’000 469 (469) 593 (593) 2019 £’000 346 (346) 565 (565) 2018 £’000 469 (469) 593 (593) 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 £/$1.31 this would result in sterling weakening to £/$1.18 and sterling strengthening to £/$1.46. 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 £/CHF1.30 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. 105 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 23. 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 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 Total 2019 £’000 Level 1 £’000 Level 2 £’000 Level 3 £’000 106 58 (109) 55 2018 £’000 199 67 (29) 237 — — — — 106 58 (109) 55 — — — — Level 1 £’000 Level 2 £’000 Level 3 £’000 — — — — 199 67 (29) 237 — — — — There have been no transfers between levels in the reporting period (2018: 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. 106 Record plc Annual Report 2019Financial statements Categories of financial instrument At 31 March 2019 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 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 Note 15 17 17 16 18 18 16 Note 15 17 17 16 18 18 16 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 6,650 10,735 12,966 — — — — — — — — (294) (2,181) — — — — 164 — — — 30,351 (2,475) 164 — — — — — — (109) (109) 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 5,917 10,198 12,498 — — — — — — — — (325) (2,067) — — — — 266 — — — — — — — — — (29) (29) Total 28,613 (2,392) 266 24. 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, 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. The lease expired on 31 May 2019. On 1 June 2017, the Group signed a five year lease on premises in Zürich, at an annual commitment of CHF 49,680. 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 2019 the Group had commitments under non-cancellable operating leases relating to land and buildings as set out below: Not later than one year Later than one year and not later than five years Later than five years Total 2019 £’000 562 1,310 — 1,872 2018 £’000 637 1,866 — 2,503 On 27 March 2019 the Group signed a contract with a 22 month rental term on offices in New York City starting 1 May 2019. Management does not consider that this contract fulfils the definition of a lease. The contract has an average annual commitment of $83,844. 107 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 25. 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 13) Other non-cash movements Changes in working capital (Increase)/decrease in receivables Increase/(decrease) in payables Decrease/(increase) 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 profit/(loss) Adjustment for: (Gain)/loss on investments Other Changes in working capital (Decrease)/increase in payables Cash (outflow)/inflow from operating activities Corporation taxes paid 2019 £’000 7,876 — 221 74 443 87 — (172) 8,529 (772) 106 102 234 8,199 (22) (1,151) 7,026 2019 £’000 99 (26) (73) (1,038) (1,038) (5) 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) Net cash (outflow)/inflow from operating activities (1,043) 1,015 108 Record plc Annual Report 2019Financial statements 26. 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 13, which includes a description of the nature of their business. Amounts due to subsidiaries Net dividends received from subsidiaries 2019 £’000 2018 £’000 (55) (1,093) 6,600 16,810 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 (2018: £nil). No expense has been recognised during the year in respect of bad or doubtful debts due from related parties. Investment in Trade Record On 22 March 2019, Record plc subscribed £40,000 for 40 per cent of the ordinary share capital of Trade Record. 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 2019 totalled £2,981,053 (2018: £3,651,092). Directors’ remuneration Emoluments (excluding pension contribution) Pension contribution (including payments made in lieu of pension contributions) Total 2019 £’000 5,411 204 889 6,504 2019 £’000 2,421 165 2,586 2018 £’000 4,965 185 1,172 6,322 2018 £’000 2,357 166 2,523 During the year, one Director of the Company (2018: one) participated in the Group Personal Pension Plan, a defined contribution scheme. Transactions with Trade Record Ltd On 22 March 2019, Record plc directors Leslie Hill and Bob Noyen each subscribed £20,000 for 20% of the ordinary share capital of Trade Record. The directors of Trade Record are Leslie Hill, director of Record plc, and Rebecca Venis, an existing employee of one of Record’s subsidiary companies and who also owns 20% of the ordinary share capital of Trade Record. 109 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 March 2019 27. 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 2019 £m 9.3 13.7 23.0 4.3 27.3 2018 £m 9.1 13.3 22.4 4.2 26.6 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% 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. 28. Ultimate controlling party As at 31 March 2019 the Company had no ultimate controlling party, nor at 31 March 2018. 29. Post reporting date events No adjusting or significant non-adjusting events have occurred between the reporting date and the date of authorisation. 110 Record plc Annual Report 2019Financial statements 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 2015 £’000 2016 £’000 2017 £’000 Audited 2018 £’000 2019 £’000 20,255 20,941 22,718 23,497 22,308 480 70 315 163 — 234 — 337 2,333 332 20,805 21,419 22,952 23,834 24,973 (148) (221) (298) (311) (385) 20,657 21,198 22,654 23,523 24,588 (13,373) (14,123) (15,067) (16,424) (16,704) 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 (8) 7,876 113 7,989 (1,559) 6,430 3.27 2.30 0.69 111 Record plc Annual Report 2019Strategic reportGovernanceFinancial statementsAdditional information DEFINITIONS “AIFMD” “Articles” “AUME” “Board” “bps” “Companies Act” “Company” “$” or “dollars” “EBT” “EM” “EPS” “ESG” “ETF” “EU” “FRB” Alternative Investment Fund Managers 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 Emerging Markets Earnings per share Environmental, social and governance 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. 112 Record plc Annual Report 2019Additional information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 27 June 2019 28 June 2019 25 July 2019 31 July 2019 Dates for 2019 dividend Ex-dividend date Record date Annual General Meeting Final dividend payment date 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 This report is printed on Munken Lynx Rough, an EU Ecolabel, EMAS, ISO-14001, FSCTM (FSC-C022692) and PEFCTM (PEFC/05-33-99) certified paper. Arctic Paper Munkedals AB is one of the most environmentally-friendly paper mills in the world and meets the requirements for FSC® Chain-of-Custody (“CoC”) certification. FSC CoC certification assures that products sold with an FSC claim originate from well-managed forests, controlled sources, and/or reclaimed materials in their supply chain. It confirms that throughout the production process there is: respect for human rights, adherence to all local applicable timber legislation and no involvement in the destruction of high conservation areas. Arctic Paper Munkedals’ Munkedal mill is committed to reducing its long-term environmental impact and has the lowest water consumption per kilogram of paper in the entire industry, whilst the company’s energy usage is within or below the EU’s Best Available Techniques. Designed and produced by Printed by CPI Colour, an FSC® and ISO 14001 accredited company. www.lyonsbennett.com recordcm.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 9 Record plc Morgan House Madeira Walk Windsor Berkshire SL4 1EP T: +44 (0)1753 852 222 marketing@recordcm.com www.recordcm.com 

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