Attached files
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EX-99.2 - EXHIBIT 99.2 - FEDERATED HERMES, INC. | exhibit992-proformafinanci.htm |
8-K - 8-K - FEDERATED HERMES, INC. | a201809178-k.htm |
Exhibit 99.1
HERMES FUND MANAGERS LIMITED
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HERMES FUND MANAGERS LIMITED
OPINION
We have audited the financial statements of Hermes Fund Managers Limited (“the Company”) for the year ended 31 December 2017 which comprise the Consolidated Profit and Loss Account, Consolidated Statement Of Comprehensive Income, Consolidated and Company Balance Sheets, Consolidated and Company Statement of Changes in Equity, Consolidated and Company Cash Flow Statements and related notes, including the accounting policies in note 1.
In our opinion the financial statements:
▪ | give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December 2017 and of the Group’s profit for the year then ended; |
▪ | have been properly prepared in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland; and |
▪ | have been prepared in accordance with the requirements of the Companies Act 2006. |
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
GOING CONCERN
We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least twelve months from the date of approval of the financial statements. We have nothing to report in these respects.
OTHER INFORMATION
The directors are responsible for the other information, which comprises the introduction, the strategic report and the directors’ report. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the strategic report and the directors’ report and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work:
▪ | we have not identified material misstatements in the strategic report and the directors’ report; |
▪ | in our opinion the information given in those reports for the financial year is consistent with the financial statements; and |
▪ | in our opinion those reports have been prepared in accordance with the Companies Act 2006. |
2
HERMES FUND MANAGERS LIMITED
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HERMES FUND MANAGERS LIMITED (continued)
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
Under the Companies Act 2006, we are required to report to you if, in our opinion:
• | adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or |
• | the parent company financial statements are not in agreement with the accounting records and returns; or |
• | certain disclosures of directors’ remuneration specified by law are not made; or |
• | we have not received all the information and explanations we require for our audit. |
We have nothing to report in these respects.
DIRECTORS’ RESPONSIBILITIES
As explained more fully in their statement set out on page 64, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
THE PURPOSE OF OUR AUDIT WORK AND TO WHOM WE OWE OUR RESPONSIBILITIES
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
/s/ Thomas Brown
Thomas Brown (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London E14 5GL
4 April 2018
HERMES FUND MANAGERS LIMITED
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CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2017
2017 | 2,016 | ||||
Notes | £’000 | £’000 | |||
Group turnover | 3 | 139,513 | 107,116 | ||
Fee and commission expenses | (7,300) | (3,120) | |||
Net group turnover | 132,213 | 103,996 | |||
Administrative expenses | (124,152) | (99,275) | |||
Group operating profit | 8,061 | 4,721 | |||
Joint ventures | 4 | 3,810 | 2,305 | ||
Realised currency (loss)/gain | (820) | 1,591 | |||
Profit on ordinary activities before interest and taxation | 11,051 | 8,617 | |||
Interest payable and similar charges | 5 | (217) | (250) | ||
Interest receivable and similar income | 5 | 2,038 | 1,807 | ||
Other finance income | 5 | 300 | 300 | ||
Profit on ordinary activities | |||||
before taxation | 6 | 13,172 | 10,474 | ||
Tax on profit on ordinary activities | 9 | (569) | (788) | ||
Profit on ordinary activities after taxation | 12,603 | 9,686 |
All of the results are derived from continuing operations.
The notes to these financial statements on pages 75 to 110 are an integral part of these financial statements.
4
HERMES FUND MANAGERS LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2017
2017 | 2,016 | ||||
Notes | £’000 | £’000 | |||
Profit for the financial year | 12,603 | 9,686 | |||
Other comprehensive income/(expense) | |||||
Remeasurement of net defined benefit liability | 17 | 7,600 | (20,000) | ||
Tax (charge)/credit – attributable to net actuarial gain/(loss) | 9 | (475) | 3,656 | ||
Currency translation differences on foreign currency net investments | 778 | (1,534) | |||
Other comprehensive income/(expense) | 7,903 | (17,878) | |||
Total comprehensive income/(expense) | 20,506 | (8,192) |
Profit for the year attributable to: | ||||
Non-controlling interest | 42 | 243 | ||
Equity shareholders of the Company | 12,561 | 9,443 | ||
12,603 | 9,686 |
Total comprehensive income/(expense) for the period attributable to: | ||||
Non-controlling interest | 42 | 243 | ||
Equity shareholders of the Company | 20,464 | (8,435) | ||
20,506 | (8,192) |
The notes to these financial statements on pages 75 to 110 are an integral part of these financial statements.
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HERMES FUND MANAGERS LIMITED
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2017
2017 | 2,016 | ||||
Notes | £’000 | £’000 | |||
Fixed assets | |||||
Intangible assets – goodwill | 11 | 368 | 735 | ||
Tangible assets | 12 | 4,762 | 1,664 | ||
Joint ventures | 13 | 10,542 | 7,932 | ||
Investments | 13 | 12,540 | 10,049 | ||
28,212 | 20,380 | ||||
Current assets | |||||
Debtors | 14 | 47,513 | 33,838 | ||
Cash at bank | 23 | 78,347 | 69,851 | ||
125,860 | 103,689 | ||||
Current liabilities | |||||
Creditors – amounts falling due within one year | 15 | (48,442) | (38,045) | ||
Net current assets | 77,418 | 65,644 | |||
Total assets less current liabilities | 105,630 | 86,024 | |||
Creditors – amounts falling due after more than | |||||
one year | 15 | (49,208) | (17,168) | ||
Provisions for liabilities | 16 | (5,558) | (3,640) | ||
Net assets excluding pension liabilities | 50,864 | 65,216 | |||
Pension deficit | 17 | - | (10,405) | ||
Net assets including pension liabilities | 50,864 | 54,811 | |||
Capital and reserves | |||||
Called up share capital | 19 | 72,458 | 62,458 | ||
Profit and loss account | (21,594) | (7,886) | |||
Shareholder’s funds | 50,864 | 54,572 | |||
Non-controlling interest | 27 | - | 239 | ||
Total capital employed | 50,864 | 54,811 |
These financial statements were approved by the Board of Directors and authorised for issue on 4 April 2018. The notes to these financial statements on pages 75 to 110 are an integral part of these financial statements.
Signed on behalf of the Board of Directors
/s/ S Nusseibeh
S Nusseibeh - Director
6
HERMES FUND MANAGERS LIMITED
COMPANY BALANCE SHEET AS AT 31 DECEMBER 2017
2017 | 2,016 | |||||
Notes | £’000 | £’000 | ||||
Fixed assets | ||||||
Tangible assets | 12 | 4,762 | 1,664 | |||
Investments | 13 | 47,476 | 42,400 | |||
52,238 | 44,064 | |||||
Current assets | ||||||
Debtors | 14 | 33,102 | 33,509 | |||
Cash at bank | 23 | 71,948 | 67,556 | |||
105,050 | 101,065 | |||||
Current liabilities | ||||||
Creditors – amounts falling due within one year | 15 | (66,936) | (74,403) | |||
Net current assets | 38,114 | 26,662 | ||||
Total assets less current liabilities | 90,352 | 70,726 | ||||
Creditors - amounts falling due after more than one year Provisions for liabilities | 15 16 | (44,024) (5,558) | (12,899) (3,640) | |||
Net assets excluding pension liabilities | 40,770 | 54,187 | ||||
Pension deficit | 17 | - | (10,405) | |||
Net assets including pension liabilities | 40,770 | 43,782 | ||||
Capital and reserves | ||||||
Called up share capital | 19 | 72,458 | 62,458 | |||
Profit and loss account | (31,688) | (18,676) | ||||
Shareholder’s funds | 40,770 | 43,782 | ||||
These financial statements were approved by the Board of Directors and authorised for issue on 4 April 2018. The notes to these financial statements on pages 75 to 110 are an integral part of these financial statements.
Signed on behalf of the Board of Directors
/s/ S Nusseibeh
S Nusseibeh - Director
Registered company number: 1661776
7
HERMES FUND MANAGERS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
AS AT 31 DECEMBER 2017
Called up | Profit | Non- | ||||||||
share | and | controlling | ||||||||
capital | loss | interest | ||||||||
account | Total | |||||||||
Notes | £’000 | £’000 | £’000 | £’000 | ||||||
At 31 December 2016 | 62,458 | (7,886) | 239 | 54,811 | ||||||
Profit for the year | - | 12,561 | 42 | 12,603 | ||||||
Re-measurement of net defined benefit liability | 17 | - | 7,600 | - | 7,600 | |||||
Deferred tax charge on pension assets | 9 | - | (475) | - | (475) | |||||
Currency translation differences on foreign currency net investments | - | 778 | - | 778 | ||||||
Total comprehensive income | - | 20,464 | 42 | 20,506 | ||||||
Issue of shares | 19 | 10,000 | - | - | 10,000 | |||||
Dividend | - | - | (281) | (281) | ||||||
Derecognition of pension scheme asset | 17 | - | (39,432) | - | (39,432) | |||||
Tax credit on derecognition of pension | 9 | 6,835 | 6,835 | |||||||
Increase in subsidiary | - | (1,575) | - | (1,575) | ||||||
At 31 December 2017 | 72,458 | (21,594) | - | 50,864 | ||||||
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HERMES FUND MANAGERS LIMITED
COMPANY STATEMENT OF CHANGES IN EQUITY
AS AT 31 DECEMBER 2017
Called up | Profit | ||||||
share | and | ||||||
capital | loss | ||||||
account | Total | ||||||
Notes | £’000 | £’000 | £’000 | ||||
At 31 December 2016 | 62,458 | (18,676) | 43,782 | ||||
Profit for the year | 10 | - | 12,460 | 12,460 | |||
Re-measurement of net defined benefit liability | 17 | - | 7,600 | 7,600 | |||
Deferred tax charge on pension liabilities | 9 | - | (475) | (475) | |||
Total comprehensive income | - | 19,585 | 19,585 | ||||
Issue of shares | 19 | 10,000 | - | 10,000 | |||
Derecognition of pension scheme asset | 17 | - | (39,432) | (39,432) | |||
Tax credit on derecognition of pension | 9 | - | 6,835 | 6,835 | |||
At 31 December 2017 | 72,458 | (31,688) | 40,770 | ||||
HERMES FUND MANAGERS LIMITED
9
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2017
Notes | 2017 | 2016 | ||
£’000 | £’000 | |||
Net cash inflow from/(used in) | ||||
operating activities | 22 | (11,047) | 8,236 | |
Cash flows from investing activities | ||||
Receipts from sale of fixed asset investments | 1,269 | 808 | ||
Purchase of fixed asset investments | (2,972) | (3,493) | ||
Interest received | 250 | 201 | ||
Dividends received from joint venture | 1,233 | 2,963 | ||
Purchase of minority interests | (632) | (1,192) | ||
Purchase of tangible fixed assets | (4,280) | (774) | ||
Net cash flows from investing activities | (5,132) | (1,487) | ||
Cash flows from financing activities | ||||
Proceeds on issue of share capital | 10,000 | 10,000 | ||
Proceeds from issue of long-term borrowings | 20,000 | - | ||
Repayment of long-term borrowings | (5,000) | - | ||
Dividends paid | (281) | (327) | ||
Net cash flows from financing activities | 24,719 | 9,673 | ||
Net increase in cash and cash equivalents | 23 | 8,540 | 16,422 | |
Cash and cash equivalents at beginning of year | 69,851 | 53,360 | ||
Effect of foreign exchange rate changes | (44) | 69 | ||
Cash and cash equivalents at end of year | 78,347 | 69,851 |
10
HERMES FUND MANAGERS LIMITED
COMPANY CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2017
Notes | 2017 | 2016 | ||
£’000 | £’000 | |||
Net cash from/(used in) | ||||
operating activities | 22 | (49,949) | (3,281) | |
Cash flows from investing activities | ||||
Receipts from sale of fixed asset investments | 1,269 | 808 | ||
Purchase of fixed asset investments | (1,972) | (3,495) | ||
Investment in joint venture | (1,000) | - | ||
Investment in subsidiaries | (641) | (1,192) | ||
Interest received | 250 | 184 | ||
Dividends received from subsidiaries | 35,693 | 14,385 | ||
Purchase of tangible fixed assets | (4,280) | (774) | ||
Net cash flows from investing activities | 29,319 | 9,916 | ||
Cash flows from financing activities | ||||
Proceeds on issue of share capital | 10,000 | 10,000 | ||
Proceeds from issue of long-term borrowings | 20,000 | - | ||
Repayment of long-term borrowings | (5,000) | - | ||
Net cash flows from financing activities | 25,000 | 10,000 | ||
Net increase in cash and cash equivalents | 23 | 4,370 | 16,635 | |
Cash and cash equivalents at beginning of year | 67,556 | 51,092 | ||
Effect of foreign exchange rate changes | 22 | (171) | ||
Cash and cash equivalents at end of year | 71,948 | 67,556 |
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HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017
1. | ACCOUNTING POLICIES |
The financial statements are prepared in accordance with applicable United Kingdom law and Accounting Standards. The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the preceding year.
a) General information and basis of accounting
The financial statements are prepared on the going concern basis as described in the Directors’ Report.
Hermes Fund Managers Limited is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is given on page 61. The nature of the Group’s operations and its principal activities are set out in the strategic report on pages 6 to 36.
The financial statements have been prepared under the historical cost convention, modified to include certain items at fair value, and in accordance with Financial Reporting Standard 102 (FRS 102) issued by the Financial Reporting Council.
The functional currency of the Company is pounds sterling because that is the currency of the primary economic environment in which the Company operates. The consolidated financial statements are also presented in pounds sterling. Foreign operations are included in accordance with the policies set out below.
b) Basis of consolidation
The Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings drawn up to 31 December each year. Acquisitions are accounted for under the acquisition method. The results of subsidiaries acquired or sold are consolidated for the period from or to the date on which control passed.
The Group has taken exemption from preparing a Company-only profit and loss account in line with Companies Act 2006.
Business combinations are accounted for under the purchase method. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
Hermes Assured Limited and Hermes Investments (North America) Limited, two wholly-owned subsidiaries, are exempt from the requirements of the Companies Act relating to the audit of individual accounts for the year ended 31 December 2017 by virtue of Section 479A of the Companies Act 2006.
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HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
1. | ACCOUNTING POLICIES (continued) |
c) Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the strategic report. The Directors’ report further describes the financial position of the Group: its cash flows, liquidity position and borrowing facilities; the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk.
The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
d) Turnover
Turnover is recognised on an accruals basis. To the extent that fees and commissions are recognised in advance of billing they are included as accrued income or expense. Turnover for investment management services includes performance fees based upon rolling performance periods of up to three years. These are recognised in the year the performance period ends.
Turnover from the supply of services represents the value of services provided under contracts to the extent that there is a right to consideration and is recorded at the fair value of the consideration received or receivable. Where payments are received from customers in advance of services provided, the amounts are recorded as deferred income and included as part of creditors due within one year.
Fee and commission expenses are paid to third parties for ongoing services under distribution agreements and are charged to the profit and loss account over the period in which the services are expected to be provided.
e) Goodwill
Goodwill represents any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired. Goodwill arising in respect of acquisitions is capitalised in the year in which it arises within intangible fixed assets and amortised over its useful life with a full year’s charge for amortisation in the year of acquisition.
If a reliable estimate of the useful life of goodwill cannot be made, the life shall not exceed five years. Provision is made for any permanent diminution in the value of goodwill.
The recoverable amount of goodwill is derived from measurement of the present value of the future cash flows of the cash-generating units (CGU) of which the goodwill is a part. Any impairment loss in respect of a CGU is allocated first to the goodwill attached to that CGU, and then to other assets within that CGU on a pro-rata basis. An impairment loss recognised for goodwill however, shall not be reversed in a subsequent period.
13
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
1. | ACCOUNTING POLICIES (continued) |
f) Financial instruments
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Equity instruments issued by the Company are recorded at the fair value of cash or other resources received or receivable, net of direct issue costs.
All financial assets and liabilities are initially measured at transaction price (including transaction costs), except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value (which is normally the transaction price excluding transaction costs).
Financial assets and liabilities are only offset in the statement of financial position when, and only when, there exists a legally enforceable right to set off the recognised amounts and the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Debt instruments that are classified as payable or receivable within one year on initial recognition are measured at the undiscounted amount of the cash or other consideration expected to be paid or received, net of impairment.
Financial assets are derecognised when and only when (a) the contractual rights to the cash flows from the financial asset expire or are settled, (b) the Group transfers to another party substantially all of the risks and rewards of ownership of the financial asset, or (c) the Group, despite having retained some, but not all, significant risks and rewards of ownership, has transferred control of the asset to another party.
Financial liabilities are derecognised only when the obligation specified in the contract is discharged, cancelled or expires.
The Group uses derivative financial instruments to reduce exposure to foreign exchange risk. The Group does not hold or issue derivative financial instruments for speculative purposes. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately.
g) Investments
In the Company balance sheet, investments in subsidiaries and associates are measured at cost less impairment. The impairment policy is shown below in (i).
Fair value measurement
The best evidence of fair value is a quoted price for an identical asset in an active market (Level 1). When quoted prices are unavailable, the price of a recent transaction for an identical asset provides evidence of fair value as long as there has not been a significant change in economic circumstances or a significant lapse of time since the transaction took place (Level 2). If the market is not active and recent transactions of an identical asset on their own are not a good estimate of fair value, the fair value is estimated by using a valuation technique (Level 3).
14
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
1. | ACCOUNTING POLICIES (continued) |
h) Joint Ventures
In the Group financial statements investments in joint ventures are accounted for using the equity method. The consolidated profit and loss account includes the Group’s share of joint venture profits, less losses, clearly indicated while the Group’s investment in joint ventures is shown separately in the consolidated balance sheet. Goodwill arising on the acquisition of joint ventures is accounted for in accordance with the policy for goodwill above. Any unamortised balance of goodwill is included in the carrying value of the investment in joint ventures.
In the company financial statements investments in joint ventures are accounted for at cost less impairment.
i) Impairment
Assets, other than those measured at fair value, are assessed for indicators of impairment at each balance sheet date. If there is objective evidence of impairment, an impairment loss is recognised in profit or loss as described below.
Non-financial assets
An asset is impaired where there is objective evidence that, as a result of one or more events that occurred after initial recognition, the estimated recoverable value of the asset has been reduced. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use.
Where indicators exist for a decrease in impairment loss, the prior impairment loss is tested to determine reversal. For all assets other than goodwill, if and only if the reasons for the impairment loss have ceased to apply, an impairment loss shall be reversed in a subsequent period. An impairment loss is reversed on an individual impaired asset to the extent that the revised recoverable value does not lead to a revised carrying amount higher than the carrying value had no impairment been recognised.
Financial assets
For financial assets carried at amortised cost, the amount of an impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
For financial assets carried at cost less impairment, the impairment loss is the difference between the asset’s carrying amount and the best estimate of the amount that would be received for the asset if it were to be sold at the reporting date.
Where indicators exist for a decrease in impairment loss, and the decrease can be related objectively to an event occurring after the impairment was recognised, the prior impairment loss is tested to determine reversal. An impairment loss is reversed on an individual impaired financial asset to the extent that the revised recoverable value does not lead to a revised carrying amount higher than the carrying value had no impairment been recognised.
15
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
1. | ACCOUNTING POLICIES (continued) |
j) | Foreign exchange |
Transactions denominated in foreign currencies are translated into the functional currency at the rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the rates ruling at that date. These translation differences are dealt with in the profit and loss account.
The results of overseas operations are translated at the average rates of exchange during the period and their balance sheets at the rates ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of overseas operations are reported in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate).
In the case of the consolidated financial statements, exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised in other comprehensive income and reported under equity. Foreign subsidiaries are retranslated using the net investment method.
k) Tangible fixed assets
Tangible fixed assets are stated at cost or valuation, net of depreciation and any provision for impairment. Depreciation is provided on cost in equal annual instalments over the estimated useful economic lives of the assets. The estimated useful economic lives are as follows:
Fixtures, fittings and equipment - One to five years
Leasehold improvements - Period of the lease
Leasehold improvements - Period of the lease
All tangible assets are depreciated from the point of acquisition to the point of disposal.
l) Operating leases
Rental expenses in respect of operating leases are charged to the profit and loss account on a straight line basis over the period of the lease. Rental income in respect of operating leases is recognised in the profit and loss account on a straight line basis over the period of the lease.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis over the lease term.
16
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
1. | ACCOUNTING POLICIES (continued) |
m) Pension benefits
For the Group’s defined benefit scheme the amounts charged to operating profit are the current service costs and gains and losses on settlements and curtailments. They are included as part of staff costs. Past service costs are recognised immediately in the profit and loss account. The net interest cost on the net defined benefit liability is shown within finance costs. Remeasurement comprising actuarial gains and losses and the return on scheme assets (excluding interest) are recognised immediately in other comprehensive income.
The Group’s defined benefit scheme is funded, with the assets of the scheme held separately from those of the Group, in separate trustee-administered funds. Pension scheme assets are measured at fair value and liabilities are measured on an actuarial basis using the projected unit credit method. The actuarial valuations are obtained at least triennially and are updated at each balance sheet date.
For defined contribution schemes, the amount charged to the profit and loss account in respect of pension costs is the contribution payable in the year. Differences between contributions payable in the year and contributions actually paid are shown either as accruals or prepayments in the balance sheet.
n) Investment income
Income from investments is accounted for on an accruals basis.
o) Current taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Income tax is recognised in the profit and loss account for the period, except to the extent that it is attributable to a gain or loss that is recognised directly in equity. In such cases the gain or loss shown in equity is stated separately from the attributable income tax, which is also recognised directly in equity.
17
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
1. ACCOUNTING POLICIES (continued)
p) Deferred taxation
Deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax balances are not discounted.
Unrelieved tax losses and other deferred tax assets are recognised only to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
Deferred tax liabilities are recognised for timing differences arising from investments in subsidiaries and associates, except where the Group is able to control the reversal of the timing difference and it is probable that it will not reverse in the foreseeable future.
Deferred tax is measured using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date that are expected to apply to the reversal of the timing difference.
Where items recognised in other comprehensive income or equity are chargeable to or deductible for tax purposes, the resulting current or deferred tax expense or income is presented in the same component of comprehensive income or equity as the transaction or other event that resulted in the tax expense or income.
q) Bonus costs
Provision is made for bonuses attributable to performance prior to the year end. Deferred bonuses subject to co-invest arrangements are accrued evenly over the period to vesting.
r) Long-term incentive plan (“LTIP”)
LTIP units awarded in the year entitle the holder to a share of pre-tax profits over a four-year vesting period. The expected costs of the LTIP payment are spread over the period of vesting and recognised as a long-term liability.
s) Provisions
Provisions are recognised when the Group has a contingent or present obligation as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
Onerous lease provisions are obligations arising under onerous contracts and are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
18
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
2. | CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS |
The reported results of the Group are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its financial statements. UK company law requires the Directors, in preparing the Group’s financial statements, to select suitable accounting policies, apply them consistently and make judgements and estimates that are reasonable and prudent. The Group’s estimates and assumptions are based on historical experience and expectation of future events and are reviewed periodically. The actual outcome may be materially different from that anticipated.
In the course of preparing the financial statements, management exercises judgement when determining the income category. Such judgement could have a significant effect on the amounts recognised in the financial statements:
Fee and commission income is recognised depending on the nature of the service provided:
▪ | income earned from provision of services is recognised as the services are provided for example management fees; and |
▪ | income earned on the execution of a significant act is recognised when the act is completed, for example, performance fees are recognised only once they have crystallised. |
The key sources of estimation uncertainty at the year-end that may have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:
(i) | Goodwill impairment |
The Directors review goodwill for impairment at least annually or when events or changes in economic circumstances indicate that impairment may have taken place. The recoverable amounts are based on value in use calculations using management’s best estimate of future cash flows and performance, discounted at a rate which the Directors estimate to be the return appropriate to the business.
(ii) | Defined benefit pension plan |
The valuation of defined benefit plan liabilities are determined by long-term actuarial assumptions. These assumptions include discount rates (which are based on the long-term yield of high quality corporate bonds), inflation rates and mortality rates. The Group exercises its judgement in determining the assumptions to be adopted, with input from an independent qualified actuary.
19
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
3. | TURNOVER |
Turnover comprises the value of services provided in the United Kingdom by the Group exclusive of VAT and is analysed by activity as follows:
Group | ||||||
2017 | 2016 | |||||
£’000 | £’000 | |||||
Management fees | 122,050 | 95,724 | ||||
Performance fees | 5,677 | 6,490 | ||||
Other fee income | 11,786 | 4,902 | ||||
Total group turnover | 139,513 | 107,116 |
Turnover for investment management services includes performance fees based upon rolling performance periods of up to three years. These are recognised in the year the performance period ends.
4. | JOINT VENTURES |
Share of results of joint venture:
2017 | 2016 | |||
£’000 | £’000 | |||
Joint venture: | ||||
Hermes GPE LLP | 3,810 | 2,305 | ||
3,810 | 2,305 | |||
Note 24 discloses additional information on principal subsidiaries and joint ventures.
20
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
5. | FINANCE INCOME/(COSTS) (NET) |
2017 | 2016 | |||
£’000 | £’000 | |||
Interest payable and similar charges | (217) | (250) | ||
Interest receivable and similar income | 2,038 | 1,807 | ||
Other finance income | 300 | 300 | ||
2,121 | 1,857 |
2017 | 2016 | |||
£’000 | £’000 | |||
Interest payable and similar charges in respect of: | ||||
Loan from ultimate parent | 217 | 250 | ||
217 | 250 |
Interest payable to the ultimate parent relates to a loan from BTPS, as shown in Note 15.
Interest receivable and similar income in respect of: | ||||
Unlisted investments (note 13) | 1,788 | 1,606 | ||
Bank deposit balances | 250 | 201 | ||
2,038 | 1,807 |
2017 | 2016 | |||
Other finance income: | £’000 | £’000 | ||
Net interest expense on defined benefit liability | 5,000 | 5,600 | ||
Net interest income on defined benefit assets | (5,300) | (5,900) | ||
(300) | (300) |
6. | PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION |
21
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
2017 | 2016 | |||
£’000 | £’000 | |||
The profit on ordinary activities before taxation is stated after charging/(crediting): | ||||
Depreciation on tangible fixed assets (note 12) | 1,182 | 812 | ||
Amortisation of goodwill (note 11) | 1,334 | 1,335 | ||
Net loss on financial liabilities at fair value through profit and loss (note 18) | (83) | 157 | ||
Foreign exchange gain/(loss) | 903 | (1,748) | ||
Profit on fair value movement of investments (note 13) | (1,788) | (1,606) | ||
Rental charges under operating leases | 2,721 | 1,879 | ||
Rental income from operating leases | (372) | (372) | ||
Auditor’s remuneration: | ||||
Audit fees - Subsidiaries | 84 | 134 | ||
- Company | 64 | 81 | ||
148 | 215 | |||
Non-audit fees: | ||||
Other services | 94 | 104 | ||
Total fees payable to Group auditor | 242 | 319 |
Amortisation of intangible assets is included in administrative expenses. Fees payable to the Company’s auditor and its associates in respect of associated pension schemes during the year were £Nil (2016: £16,710).
7. | STAFF NUMBERS AND COSTS |
Average number of persons employed by the Group | 2017 | 2016 | ||
and Company in the year: | No. | No. | ||
Investment management | 134 | 133 | ||
Business development | 66 | 57 | ||
Administration | 177 | 161 | ||
377 | 351 | |||
Staff costs during the year in respect of these | 2017 | 2016 | ||
directors and employees were: | £’000 | £’000 | ||
Wages and salaries | 75,829 | 57,245 | ||
Social security costs | 9,963 | 7,006 | ||
Pension cost related to Group scheme | 4,529 | 4,157 | ||
Redundancy payments | 726 | 1,335 | ||
91,047 | 69,743 |
8. | DIRECTORS’ REMUNERATION AND TRANSACTIONS |
22
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
Directors’ remuneration (including Non-Executive Directors) | 2017 | 2016 | ||
£’000 | £’000 | |||
Emoluments | 4,627 | 4,174 | ||
Amounts receivable under long-term incentive schemes | 544 | 218 | ||
Company contributions to money purchase pension schemes | 55 | 59 | ||
5,226 | 4,451 |
The Group operates co-investment/bonus deferral schemes whereby a portion of bonuses awarded in respect of the year are deferred. The full value of deferred awards granted to Executive Directors in respect of the year is £1,430,000 (2016: £1,292,500), although they will only become payable after the Directors satisfy future service conditions. Deferred awards are included in total remuneration disclosed above.
The number of Directors who: | 2017 | 2016 | ||
No | No | |||
Are members of a money purchase pension scheme | 3 | 3 | ||
Had awards receivable in the form of units under a long term incentive scheme | 3 | 3 | ||
Remuneration of the highest paid director: | 2017 | 2016 | ||
£’000 | £’000 | |||
Emoluments | 2,211 | 1,938 | ||
Company contributions to money purchase schemes | 19 | 19 | ||
Amounts receivable (other than shares and share options) under long-term incentive schemes | 289 | 114 | ||
2,519 | 2,071 |
Of this amount £785,000 (2016: £785,000) is deferred over a period of up to three years.
Details of transactions with Directors and key management personnel during the year are disclosed in note 26.
9. | TAX ON PROFIT ON ORDINARY ACTIVITIES |
23
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
a) | Analysis of tax charge/(credit) for the year | 2017 | 2016 | |
£’000 | £’000 | |||
Amounts recognised in profit or loss | ||||
Current tax: | ||||
UK corporation tax at 19.25% (2016: 20%) | 8,353 | 1,602 | ||
Overseas tax | - | (3) | ||
Adjustment in respect of prior periods | - | (122) | ||
Total current tax charge | 8,353 | 1,477 | ||
Deferred tax: | ||||
Timing differences, origination and reversal | (7,770) | 731 | ||
Adjustment in respect of prior periods | (14) | (1,757) | ||
Effect of tax rate change on opening balances | - | 337 | ||
Total deferred tax credit | (7,784) | (689) | ||
Tax charge on profit on ordinary activities | 569 | 788 | ||
Amounts recognised in other comprehensive income | ||||
Current tax: | ||||
UK corporation tax at 19.25% (2016: 20%) | (546) | (1,600) | ||
Deferred tax: | ||||
Actuarial (gain)/loss on defined benefit pension scheme | 1,021 | (2,056) | ||
Total tax on items in the statement of other comprehensive income | 475 | (3,656) | ||
Amounts recognised directly in equity | ||||
Current tax: | ||||
UK corporation tax at 19.25% (2016: 20%) | (7,583) | - | ||
Deferred tax: | ||||
Tax on derecognition of defined benefit pension scheme | 748 | - | ||
Total tax credit | (6,835) | - |
24
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
9. TAX ON PROFIT ON ORDINARY ACTIVITIES (continued)
b) | Reconciliation of tax charge The tax charged in the year differs from that resulting from applying the average rate of corporation tax in the UK of 19.25% (2016: 20%). The differences are explained below: |
2017 | 2016 | |||
£’000 | £’000 | |||
Profit on ordinary activities multiplied by the average rate of corporation tax in the UK of 19.25% (2016: 20%) | 2,536 | 2,095 | ||
Effects of: | ||||
Non-taxable income | (80) | (252) | ||
Non-deductible expenses | 608 | 404 | ||
Amounts transferred to the Statement of Comprehensive Income | 234 | (344) | ||
Foreign tax charge | - | (3) | ||
Adjustments in respect of prior periods | (14) | (1,879) | ||
Effect of differences to deferred tax rates | 374 | 1,094 | ||
Deferred tax recognised | (3,595) | (399) | ||
Group relief not charged for | 560 | 72 | ||
Chargeable gains | (54) | - | ||
Current tax charge for the year | 569 | 788 | ||
The effective tax rate of 4.3% is lower than the UK corporation tax rate of 19.25% for the year primarily due to the utilisation of brought forward losses for which deferred tax had not previously been provided for, and also the first time recognition of deferred tax on certain losses carried forward in the Group.
25
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
9. TAX ON PROFIT ON ORDINARY ACTIVITIES (continued)
c) | Deferred tax position | |||||||
2017 | 2017 | 2016 | 2016 | |||||
Provided | Unprovided | Provided | Unprovided | |||||
£’000 | £’000 | £’000 | £’000 | |||||
The Group | ||||||||
Deferred tax (asset)/liability: | ||||||||
Fixed asset timing difference | (2,294) | - | (2,612) | (3) | ||||
Tax losses | (1,771) | (4,907) | - | (8,665) | ||||
Capital gains | 493 | - | 291 | - | ||||
Short-term timing differences | (9,506) | - | (4,742) | (15) | ||||
(13,078) | (4,907) | (7,063) | (8,683) | |||||
The Company | ||||||||
Deferred tax (asset)/liability: | ||||||||
Fixed asset timing differences | (2,280) | - | (2,598) | - | ||||
Tax losses | - | (4,715) | - | (6,615) | ||||
Capital gains | 493 | - | 291 | - | ||||
Short-term timing differences | (8,510) | - | (3,557) | - | ||||
(10,297) | (4,715) | (5,864) | (6,615) | |||||
Deferred tax assets totalling £4,907,490 (2016: £8,683,308) have not been recognised in respect of certain trading losses as the Group is not sufficiently certain that it will be able to recover those assets within a relatively short period of time.
10. | PROFIT ATTRIBUTABLE TO THE PARENT COMPANY |
As permitted by Section 408 of the Companies Act 2006, no separate profit and loss account or statement of comprehensive income is presented as part of these financial statements. The parent company’s profit after tax for the year amounted to £12,459,993 (2016: loss of £2,100,158).
11. | INTANGIBLE FIXED ASSETS |
26
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
Goodwill | ||
£’000 | ||
The Group | ||
Cost: | ||
At 1 January 2017 | 3,322 | |
At 31 December 2017 | 3,322 | |
Accumulated amortisation: | ||
At 1 January 2017 | (2,587) | |
Amortisation | (367) | |
At 31 December 2017 | (2,954) | |
Net book value: | ||
At 31 December 2017 | 368 | |
At 31 December 2016 | 735 | |
The remaining unamortised goodwill above relates to Hermes European Equities Limited.
Unamortised goodwill of £2,903,022 (2016: £3,870,022) arising on the part-acquisition of Hermes GPE LLP in 2011 is included in the carrying value of the investment in joint ventures in accordance with the policy set out in the Accounting Policies. A total of £967,000 (2016: £967,000) was amortised during the year relating to the Hermes GPE LLP joint venture, in addition to the amortisation charge above.
27
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
12. | TANGIBLE FIXED ASSETS |
Leasehold Improvements | Fixtures, Fittings and Equipment | Total | ||||
The Group | £’000 | £’000 | £’000 | |||
Cost: | ||||||
At 1 January 2017 | 5,915 | 12,281 | 18,196 | |||
Additions | 3,975 | 305 | 4,280 | |||
At 31 December 2017 | 9,890 | 12,586 | 22,476 | |||
Accumulated depreciation: | ||||||
At 1 January 2017 | 5,344 | 11,188 | 16,532 | |||
Charge for the year | 676 | 506 | 1,182 | |||
At 31 December 2017 | 6,020 | 11,694 | 17,714 | |||
Net book value: | ||||||
At 31 December 2017 | 3,870 | 892 | 4,762 | |||
At 31 December 2016 | 571 | 1,093 | 1,664 | |||
Leasehold Improvements | Fixtures, Fittings and Equipment | Total | ||||
The Company | £’000 | £’000 | £’000 | |||
Cost: | ||||||
At 1 January 2017 | 5,915 | 12,037 | 17,952 | |||
Additions | 3,975 | 305 | 4,280 | |||
At 31 December 2017 | 9,890 | 12,342 | 22,232 | |||
Accumulated depreciation: | ||||||
At 1 January 2017 | 5,344 | 10,944 | 16,288 | |||
Charge for the year | 676 | 506 | 1,182 | |||
At 31 December 2017 | 6,020 | 11,450 | 17,470 | |||
Net book value: | ||||||
At 31 December 2017 | 3,870 | 892 | 4,762 | |||
At 31 December 2016 | 571 | 1,093 | 1,664 | |||
12. TANGIBLE FIXED ASSETS (continued)
Included within leasehold improvements is an amount of £1,475,076 relating to the Company’s estimate of the costs of restoring the new office, 150 Cheapside to its original state at the end of the lease.
28
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
Accelerated depreciation of £331,467 has been recognised for leasehold improvements relating to the previous office, Lloyds Chambers; this office was vacated in January 2018 before the end of the lease.
Work in progress costs of £2,419,601 relating to the fit out of 150 Cheapside have been capitalised as leasehold improvements and will be depreciated from the date the office is occupied to the end of the lease.
13. | FIXED ASSET INVESTMENTS |
Investment | |||||||
in Joint | Unlisted | ||||||
Ventures | Investments | Total | |||||
£’000 | £’000 | £’000 | |||||
The Group | |||||||
At 1 January 2017 | 7,932 | 10,049 | 17,981 | ||||
Share of retained profit | 3,810 | - | 3,810 | ||||
Additions | 1,000 | 1,972 | 2,972 | ||||
Movement in fair value | - | 1,788 | 1,788 | ||||
Goodwill amortisation | (967) | - | (967) | ||||
Disposals | - | (1,269) | (1,269) | ||||
Dividends received from joint ventures | (1,233) | - | (1,233) | ||||
At 31 December 2017 | 10,542 | 12,540 | 23,082 |
Included within unlisted investments are investments held for the purposes of hedging liabilities on co-invest bonus arrangements that are classified as financial assets. During the year, there were additions and disposals of £2,971,597 and £1,269,025 respectively. These investments are measured at fair value through profit and loss. A fair value gain of £1,787,800 was recognised in the profit and loss during the year (2016: £1,605,567 gain).
Investments in joint ventures comprise the following share of net assets:
2017 | 2016 | |||
£’000 | £’000 | |||
Hermes GPE LLP | 10,542 | 7,932 | ||
Total | 10,542 | 7,932 |
The Group had no interests in associate undertakings at the balance sheet date.
The companies that make up the Group are analysed in note 24.
29
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
13. FIXED ASSET INVESTMENTS (continued)
Investment | Investment | Inve | ||||||
in | in Joint | Unlisted | ||||||
Subsidiaries | Ventures | Investments | Total | |||||
£’000 | £’000 | £’000 | £’000 | |||||
The Company | ||||||||
Cost: | ||||||||
At 1 January 2017 | 19,785 | 12,674 | 10,047 | 42,506 | ||||
Additions | 1,585 | 1,000 | 1,972 | 4,557 | ||||
Movement in fair value | - | - | 1,788 | 1,788 | ||||
Disposals | - | - | (1,269) | (1,269) | ||||
At 31 December 2017 | 21,370 | 13,674 | 12,538 | 47,582 | ||||
Provision for impairment: | ||||||||
At 1 January 2017 | 106 | - | - | 106 | ||||
At 31 December 2017 | 106 | - | - | 106 | ||||
Net book value: | ||||||||
At 31 December 2017 | 21,264 | 13,674 | 12,538 | 47,476 | ||||
At 31 December 2016 | 19,679 | 12,674 | 10,047 | 42,400 |
The Company recognises a provision for impairment against the investment in Hermes Investments (North America) Limited, due to the uncertain timing as to when the Company will earn a return from this investment.
During the year the Company acquired the remaining 9.51% in Hermes European Equities Limited, now a wholly-owned subsidiary.
Unlisted investments are measured at fair value through profit and loss.
14. | DEBTORS |
30
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
2017 | 2017 | 2016 | 2016 | |||||
Group | Company | Group | Company | |||||
£’000 | £’000 | £’000 | £’000 | |||||
Due within one year: | ||||||||
Owed by subsidiaries | - | 16,411 | - | 16,625 | ||||
Owed by joint ventures | 13 | 13 | 11 | 11 | ||||
Owed by parent | 8,694 | - | 9,644 | 152 | ||||
Trade debtors | 3,148 | 48 | 2,936 | 606 | ||||
Deferred tax | 13,078 | 10,297 | 7,063 | 5,864 | ||||
Corporation tax | - | - | 61 | 5,704 | ||||
Other debtors | 2,174 | 1,807 | 1,570 | 1,570 | ||||
Prepaid and accrued income | 20,406 | 4,526 | 12,553 | 2,977 | ||||
47,513 | 33,102 | 33,838 | 33,509 |
Other debtors include £300,962 in respect of a Director’s loan. The original loan was issued on 21 November 2017 for £300,000. This is disclosed further in note 26 Related Party Transactions.
15. | CREDITORS |
2017 | 2017 | 2016 | 2016 | |||||
Group | Company | Group | Company | |||||
£’000 | £’000 | £’000 | £’000 | |||||
Amounts falling due within one year: | ||||||||
Owed to parent | 228 | - | 191 | - | ||||
Owed to subsidiaries | - | 39,305 | - | 54,336 | ||||
Other creditors | 4,455 | 4,410 | 2,467 | 2,440 | ||||
Corporation tax | 159 | 223 | - | - | ||||
Deferred income | 777 | 773 | - | - | ||||
Accruals and deferred income | 42,823 | 22,225 | 35,387 | 17,627 | ||||
48,442 | 66,936 | 38,045 | 74,403 |
15. CREDITORS (continued)
31
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
Amounts falling due after more than one year: | 2017 Group £’000 | 2017 Company £’000 | 2016 Group £’000 | 2016 Company £’000 | ||||
Owed to parent | 20,048 | 20,048 | 5,822 | 5,822 | ||||
Other creditors | 24,005 | 18,821 | 11,346 | 7,077 | ||||
Deferred income | 5,155 | 5,155 | - | - | ||||
49,208 | 44,024 | 17,168 | 12,899 |
The amount owed to parent includes £20,048,284 relating to an unsecured subordinated loan with no fixed repayment date taken out on 14 December 2017. The loan accrues interest at a rate of LIBOR +5%.
Deferred income includes a lease incentive of £5,927,835. An original lease incentive amount of £6,250,000 was received in respect of the new office premises, 150 Cheapside, and is unwound on a straight-line basis over the term of the lease.
Other creditors includes deferred consideration of £600,000 in respect of the Company’s repurchase of the remaining 9.51% shares in HEEL.
16. | PROVISIONS FOR LIABILITIES |
Onerous lease provision | Dilapidation provision | Total | ||||||
2017 | 2017 | 2017 | ||||||
£’000 | £’000 | £’000 | ||||||
The Group and Company | ||||||||
At 1 January | 1,171 | 2,469 | 3,640 | |||||
Charged to the profit and loss | 1,085 | 1,536 | 2,621 | |||||
Utilisation of provision | (703) | - | (703) | |||||
At 31 December | 1,553 | 4,005 | 5,558 |
The onerous lease provision above relates to a liability arising from vacant space on a portion of the office property at Lloyds Chambers. This cost includes rent, service
16. PROVISIONS FOR LIABILITIES (continued)
charges and business rates apportioned to the vacant area. The principal assumptions include an aggregation of future costs discounted using a pre-tax risk-free rate based on a government bond rate of similar duration. During the year the Group increased its onerous lease provision to £1,552,826 due to an increase in vacant space in 2018 as a result of the office move to 150 Cheapside in January 2018.
A dilapidation provision has been recognised on the leasehold property at Lloyds Chambers, as the terms of the lease require the Company to restore the property to its original condition following changes made to the property during the period of the lease.
32
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
A further dilapidation provision has been recognised in respect of works to be carried out in the new office at 150 Cheapside.
17. PENSION COMMITMENTS
The Group operates a defined benefit pension scheme, Hermes Group Pension Scheme (the “Scheme”), funded by the payment of contributions to a separately administered trust fund. Members of HGPS are entitled to pension amounts on retirement linked to their final salary (with inflationary uplift). The scheme was closed to new members on 1 July 2008. The Group closed its final salary pension scheme to future accrual with effect from 31 October 2011. Thereafter, the Company made contributions to a defined contribution scheme for all employees.
The Scheme is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the Scheme is carried out at least once every three years to determine whether the Statutory Funding Objective is met. As part of the process the Company must agree with the trustees of the Scheme the contributions to be paid to address any shortfalls against the Statutory Funding Objective.
On 15 December 2017, HFML entered into a Flexible Apportionment Arrangement (FAA) with BT Pension Scheme Trustee Limited (BTPSTL), following which it was agreed that the Company would have no further funding obligations and BTPSTL would take over responsibility for all the liabilities in relation to the scheme. This agreement was subject to the Company making an additional one-off contribution to the scheme of £35m. As the Company became discharged of any further liability in relation to the Scheme, the liability was derecognised on 15 December 2017.
Defined Contribution Scheme
Contributions to the defined contribution scheme amounted to £3,829,312 during the year (2016: £3,557,492). The contributions outstanding as at the year-end amounted to £Nil (2016: £Nil).
Defined Benefit Pension Scheme
Contributions to the Scheme are determined with the advice of independent qualified actuaries on the basis of triennial valuations using the Projected Unit method.
17. PENSION COMMITMENTS (continued)
Mortality assumptions:
Investigations have been carried out within the past three years into the mortality experience of the Group’s defined benefit schemes. These investigations concluded that the current mortality assumptions include sufficient allowance for future improvements in mortality rates. The assumed life expectations on retirement at 60 are:
2017 | 2016 | ||
years | years | ||
Retiring today | 27.3 | 27.6 | |
Retiring in 20 years | 29.2 | 30.0 |
33
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
The actuarial valuation was updated at 15 December 2017 by a qualified actuary using assumptions that are consistent with the requirements of FRS 102. Investments have been valued, for this purpose, at fair value. Contributions of £42.6m were made during the year into the scheme (2016: £8.3m).
The amount included in the balance sheet arising from the Group’s obligations in respect of its defined benefit pension scheme is as follows:
2017 | 2016 | |||
£m | £m | |||
Present value of funded scheme obligation | - | (190.70) | ||
Fair value of scheme assets | - | 180.3 | ||
Deficit | - | (10.40) |
The amounts recognised in the profit and loss account are as follows:
2017 | 2016 | ||
£m | £m | ||
Administration costs | 0.7 | 0.6 | |
Interest on scheme obligation | 5.0 | 5.6 | |
Expected return on scheme assets | (5.30) | (5.90) | |
Total | 0.4 | 0.3 |
17. PENSION COMMITMENTS (continued)
‘Interest on scheme obligation’ and ‘Expected return on scheme assets’ are disclosed net as £0.3m ‘Other finance costs’ in the Consolidated Profit and Loss Account (2016: £0.3m).
Analysis of the actuarial gain recognised in the consolidated statement of comprehensive income:
2017 | 2016 | |||
£m | £m | |||
Actual return less expected return on scheme | ||||
assets, i.e. gain/(loss) | 14.5 | 26.7 | ||
Changes in assumptions underlying the present | ||||
value of scheme liabilities, i.e. gain/(loss) | (6.90) | (46.70) | ||
Actuarial gain/(loss) | 7.6 | (20.00) | ||
Changes in the present value of the defined benefit obligation are as follows:
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HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
2017 | 2016 | |||
£m | £m | |||
Opening defined benefit obligation | 190.7 | 144.0 | ||
Interest cost | 5.0 | 5.6 | ||
Benefits paid | (7.80) | (5.60) | ||
Changes to assumptions | 6.9 | 46.7 | ||
Derecognition of defined benefit obligation | (194.80) | - | ||
Closing defined benefit obligation | - | 190.7 | ||
Changes in the fair value of the assets over the period are as follows:
2017 | 2016 | |||
£m | £m | |||
Opening fair value of assets | 180.3 | 145.6 | ||
Interest on assets | 5.3 | 5.9 | ||
Company contribution | 42.6 | 8.3 | ||
Benefits paid | (7.80) | (5.60) | ||
Administrative costs | (0.70) | (0.60) | ||
Return on assets less interest | 14.5 | 26.7 | ||
Derecognition of fair value of assets | (234.20) | - | ||
Closing fair value of assets | - | 180.3 | ||
17. PENSION COMMITMENTS (continued)
The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:
2017 | 2016 | |||
% | % | |||
Equities | - | 32 | ||
Bonds / Gilts | - | 41 | ||
Real estate / Other | - | 27 |
Included in the fair value of plan assets are investments in the Group’s managed funds with a value of £Nil (2016: £27.3m).
Principal actuarial assumptions at the balance sheet date:
2017 | 2016 | |||
% | % | |||
Discount rate at 31 December | N/A | 2.8 | ||
Future pensionable salary increases | N/A | 2.1 | ||
Future increases to pensions in payment (HGPS members) | N/A | 3.1 | ||
Future increases to pensions in payment (HPS members) | N/A | 2.1 |
Pension increases in deferment are linked to Consumer Price Inflation (CPI) for both Hermes Pension Scheme (HPS) and Hermes Group Pension Scheme (HGPS) members. Pension increases in payment for HPS members are in line with CPI and pension increases in payment for HGPS members are in line with Retail Price Inflation (RPI). On 17 May 1999 all assets and liabilities of the HPS were transferred to the HGPS. The rate of return
35
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
has been determined on an asset class basis reflecting factors including equity market movements, future expectations, bond yields and inflation.
17. PENSION COMMITMENTS (continued)
Amounts for the current and previous four periods are as follows:
2017 | 2016 | 2015 | 2014 | 2013 | ||
£m | £m | £m | £m | £m | ||
Present value of scheme obligation | - | (190.70) | (144.00) | (148.50) | (140.70) | |
Fair value of scheme assets | - | 180.3 | 145.6 | 138.8 | 118.4 | |
Surplus/(Deficit) | - | (10.40) | 1.6 | (9.70) | (22.30) | |
Experience adjustments on scheme assets – gain/(loss) | 14.5 | 26.7 | (0.4) | 10.5 | 3.4 | |
Experience adjustments on scheme liabilities – gain/(loss) | (6.90) | (46.70) | (1.50) | (0.10) | 0.2 | |
Derecognition of pension scheme | (39.40) | - | - | - | - | |
18. FINANCIAL INSTRUMENTS
The carrying value of the Group’s financial assets and liabilities are summarised below:
Notes | 2017 | 2016 | |||
Financial assets | £m | £m | |||
Measured at fair value through profit or loss | |||||
Fixed asset unlisted investments | 13 | 12,249 | 9,797 | ||
Measured at undiscounted amount receivable | |||||
Trade and other debtors | 14 | 47,513 | 33,838 | ||
Fixed asset investments in unlisted equity instruments | 13 | 291 | 252 | ||
60,053 | 43,887 |
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HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
Notes | 2017 | 2016 | |||
Financial liabilities | £’000 | £’000 | |||
Measured at fair value through profit and loss | |||||
Foreign exchange forward derivative contracts | (83) | 157 | |||
Measured at amortised cost: | |||||
Loans payable | 15 | 20,048 | 5,822 | ||
Measured at undiscounted amount payable: | |||||
Trade and other creditors | 15,16 | 83,243 | 52,874 | ||
103,208 | 58,853 |
18. FINANCIAL INSTRUMENTS (continued)
The Group enters into forward foreign exchange contracts to hedge exposure to net revenues received in foreign currency. The liability above reflects the fair value of those derivative contracts at the balance sheet date. The below shows the contracts entered into before the year end:
Liabilities as at 31 December 2017
Sell | Buy | Settlement date | Fair value in £’000 | |||
USD ‘000 | 24,418 | GBP ‘000 | 18,000 | 2 July 2018 | 17,958 | |
USD ‘000 | 24,478 | GBP ‘000 | 18,000 | 28 Sept 2018 | 17,959 | |
Net change in fair value | (83) |
Liabilities as at 31 December 2016
Sell | Buy | Settlement date | Fair value in £’000 | |||
USD ‘000 | 22,443 | GBP ‘000 | 18,000 | 20 Dec 2017 | 18,164 | |
EUR ‘000 | 5,849 | GBP ‘000 | 5,000 | 20 Dec 2017 | 4,993 | |
Net change in fair value | 157 |
Fair value was determined using the Level 2 measurement basis.
The Group’s income, expense, gains and losses in respect of financial instruments are summarised below:
2017 | 2016 | |||
Interest income and (expense) | £’000 | £’000 | ||
Total interest expense for financial liabilities at amortised cost | (217) | (250) | ||
Fair value gains and losses | ||||
On financial assets measured at fair value through profit and loss | 1,788 | 1,606 | ||
On financial liabilities measured at fair value through profit and loss | (83) | 157 |
19. CALLED UP SHARE CAPITAL
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HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
2017 | 2016 | ||||
£ | £ | ||||
Called up, allotted and fully paid: | |||||
72,458,000 (2016: 62,458,000) Ordinary shares of £1 each | 72,458 | 62,458 | |||
72,458 | 62,458 | ||||
On 14 December 2017, the company issued capital of £10,000,000 to its owner, BTPS.
20. | LONG-TERM INCENTIVE PLAN |
The long-term incentive plan (LTIP) is an incentive plan designed to align an element of certain key employees’ compensation to the future success of the Group.
For each award, the shares vest after four years. Each award in a particular year represents the following:
• | On vesting and on the basis that there is no full sale of Hermes before that date a right to share in 30% of the pre-tax statutory profits of Hermes. |
• | Pre-vesting, a right to share in a proportion of the proceeds of any sale or partial sale of Hermes above the initial base value. |
No. of units awarded 2017 | No. of units awarded 2016 | |||
At 1 January | 174.5 | 95.5 | ||
Issued during year | 150.5 | 94.5 | ||
Forfeited during year | (3.00) | (15.50) | ||
At 31 December | 322.0 | 174.5 |
The total of all awards outstanding as at 31 December 2017 is 322 units.
During the year the Company issued 150.5 units. Due to the leaver provisions, 3 of these units were forfeited during the year. The total liability recognised as at 31 December 2017 was £15,016,101 (2016: £2,972,722).
In addition to the LTIP, the Company has an interim profit participation (IPP) plan. Each IPP unit entitles the holder to a right to share in 18.5% of the pre-tax statutory profits of the Group for the years ending 31 December 2015, 2016 and 2017. The value of the IPP liability recognised as at 31 December 2017 was £2,832,184 (2016: £1,587,041).
38
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
21. | FINANCIAL COMMITMENTS |
Operating Lease Commitments
The Group and Company’s total future minimum lease payments on non-cancellable operating leases are as follows:
Land and | Land and | |||||||
Buildings 2017 | Other 2017 | Buildings 2016 | Other 2016 | |||||
£’000 | £’000 | £’000 | £’000 | |||||
Within one year | 3,944 | 59 | 2,134 | 168 | ||||
Between two – five years | 11,028 | - | 1,408 | 98 | ||||
After five years | 7,130 | - | - | - | ||||
22,102 | 59 | 3,542 | 266 | |||||
The UK operating lease relating to the new office, 150 Cheapside, is subject to an upwards only rent review on 21 October 2020. The Company also has an option to exit the lease on 21 October 2020 by giving 9 months’ notice.
Contingent Liabilities
During the year the Company gave guarantees under Section 479C of the Companies Act 2006 to two wholly-owned subsidiary undertakings: Hermes Assured Limited and Hermes Investments (North America) Limited. As such, both subsidiaries are exempt from the requirements of the Companies Act relating to the audit of individual accounts for the year ended 31 December 2017 by virtue of Section 479A of the Companies Act 2006.
39
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
22. | RECONCILIATION OF OPERATING PROFIT TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES |
Group | Company | Group | Company | ||||||
2017 | 2017 | 2016 | 2016 | ||||||
£’000 | £’000 | £’000 | £’000 | ||||||
Operating profit/(loss) | 8,061 | (31,612) | 4,721 | (23,074) | |||||
Bank charges | - | - | (14) | (17) | |||||
Reversal of impairments | - | - | - | (250) | |||||
Adjustment for pension funding | (41,937) | (41,937) | (7,700) | (7,700) | |||||
Depreciation | 1,182 | 1,182 | 812 | 812 | |||||
Amortisation | 1,335 | - | 1,335 | - | |||||
Increase in provisions | 4,387 | 4,387 | - | ||||||
Decrease/(increase) in debtors | (7,911) | 848 | 5,003 | (949) | |||||
Increase in creditors | 24,827 | 12,469 | 2,625 | 26,453 | |||||
Cash generated from operations | (10,056) | (54,663) | 6,782 | (4,725) | |||||
Interest paid | (991) | (991) | - | - | |||||
Tax received/(paid) | - | 5,705 | 1,454 | 1,444 | |||||
Net cash from/(used in) operating activities | (11,047) | (49,949) | 8,236 | (3,281) |
23. | RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS |
Group | Company | Group | Company | |||||
2017 | 2017 | 2016 | 2016 | |||||
£’000 | £’000 | £’000 | £’000 | |||||
Net funds at beginning of year | 69,851 | 67,556 | 53,360 | 51,092 | ||||
Increase in cash in year | 8,540 | 4,370 | 16,422 | 16,635 | ||||
Effect of foreign exchange rate changes | (44) | 22 | 69 | (171) | ||||
Net funds at end of year | 78,347 | 71,948 | 69,851 | 67,556 |
40
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
24. | ADDITIONAL INFORMATION ON PRINCIPAL SUBSIDIARIES AND JOINT VENTURES |
The Company and the Group have investments in the following subsidiary undertakings and joint ventures that principally affect the results and net assets of the Group.
subsidiary undertakings | activity | REGISTERED OFFICE | |
Hermes Investment Management Limited | Investment management | Sixth Floor, 150 Cheapside, London, EC2V 6ET (Cheapside) | |
Hermes Real Estate Investment Management Limited | Investment management | Cheapside | |
Hermes European Equities Limited | Investment management | Cheapside | |
Hermes BPK Limited | Investment management | Cheapside | |
Hermes Private Equity Limited | Investment management | Cheapside | |
Hermes Alternative Investment Management Limited | Investment management | Cheapside | |
Hermes Equity Ownership Services Limited | Stewardship and corporate governance | Cheapside | |
Hermes Administration Services Limited (Dissolved 20.2.18) | Investment management | Cheapside | |
Hermes Assured Limited | Investment management | Cheapside | |
Hermes BPK Partners Inc. (Dissolved 30.1.18) | Investment management | 2711 Centerville Road, Suite 400 New York NY10017, USA | |
Hermes Investments (North America) Limited | Investment management | Cheapside | |
Hermes Fund Managers (North America) GP, Inc. | Inactive | 200 State Street, 7th floor, Boston MA 02109-2696, USA | |
Hermes Real Estate Debt GP Limited | Investment management | Cheapside | |
Hermes Private Debt I GP Limited | Investment management | Cheapside | |
Hermes Global Funds GP Limited | Inactive | c/o Walkers Corporate Services Limited, 87 Rory Street, George Town, Grand Cayman, KY1-9005, Cayman Islands | |
Hermes BPK Coinvestment Trustees Limited | Inactive | Cheapside | |
Hermes Pension Fund Management Limited | Inactive | Cheapside | |
Hermes Secretariat Limited | Inactive | Cheapside | |
Hermes Sourcecap Limited | Inactive | Cheapside | |
Hermes Private Debt (Lux) I GP S.à.r.l. | Investment management | 51 Avenue J F Kennedy, Kirchberg, L1855, Luxembourg | |
Hermes Private Debt (Lux) II GP S.à.r.l. | Investment management | 51 Avenue J F Kennedy, Kirchberg, L1855, Luxembourg | |
joint ventures | |||
Hermes GPE LLP Vista UK Residential 1 (GP) LLP Vista UK Residential Real Estate (GP) LLP | Investment management Investment management Investment management | Cheapside Cheapside Brodies LLP, 15 Atholl Crescent, Edinburgh, EH3 8HA |
Subsidiary undertakings disclosed above are wholly-owned subsidiaries. All subsidiaries disclosed above have been consolidated in these financial statements.
Hermes GPE LLP (“HGPE”) is a joint venture between Hermes Fund Managers Limited and the HGPE management team through GPE Partner Limited. It is incorporated in the United Kingdom and is registered and operates in England and Wales.
Hermes BPK Limited applied for strike off on 13 March 2018 and the liquidation process is expected to complete in 2018. Hermes BPK Partners Inc. was dissolved on 30 January 2018.
41
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
25. | FINANCIAL RISK MANAGEMENT OBJECTIVES AND STRATEGY |
The Group’s activities expose it to a number of financial risks. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provides written principles on the use of financial derivatives to manage these risks. The Group does not use derivative financial instruments for speculative purposes.
The principal financial risk exposures of the Company and the Group at the balance sheet date relate to credit, liquidity, interest rate and market risks. The Group has in place a system of controls and processes to mitigate the risks identified.
Credit Risk
Credit risk is the risk that a counterparty will be unable to meet a commitment that it has entered into with the entity. The following are credit risks relevant to the Company and the Group at the balance sheet date.
i) Fund-specific: Within a number of the funds operated by entities within the Group, investment positions are taken gaining exposure to other parties. Applicable limits are stated within the objectives and constraints of each fund. The risk is assessed by qualified and trained professionals using a range of information and tools.
ii) Transaction-related: An inevitable consequence of both investment transactions within the funds and transactions within Group entities is the involvement of counterparties, particularly brokers. A process is in place to assess the suitability of counterparties.
The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date. At 31 December 2017, the Group and the Company’s financial assets exposed to credit risk amounted to the following:
Financial assets | ||||||||
2017 | 2017 | 2016 | 2016 | |||||
Group | Company | Group | Company | |||||
£’000 | £’000 | £’000 | £’000 | |||||
Cash at bank | 78,347 | 71,948 | 69,851 | 67,556 | ||||
Owed by subsidiaries | - | 16,411 | - | 16,625 | ||||
Trade debtors and accrued income | 23,554 | 4,574 | 15,489 | 3,583 | ||||
Taxation | 13,078 | 10,297 | 7,124 | 11,568 | ||||
Owed by parent | 8,694 | - | 9,644 | 152 | ||||
Other debtors | 2,187 | 1,820 | 1,581 | 1,581 | ||||
125,860 | 105,050 | 103,689 | 101,065 |
42
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
25. | FINANCIAL RISK MANAGEMENT OBJECTIVES AND STRATEGY (continued) |
Cash at bank is held in current accounts or placed on deposit in highly-rated liquid money-market funds or with highly-rated counterparties. Bankruptcy or insolvency of bank counterparties may cause the Company’s rights with respect to the cash held by the banks to be delayed or limited. Bank credit ratings are high and are monitored by management with reference to reputable rating agencies such as Standard & Poor’s, Moody’s or Fitch. If the banks’ financial positions were to materially deteriorate then cash holdings would be moved to other banks.
Bankruptcy or insolvency of the counterparty may cause delays in obtaining the amounts owed, or the Company may have limited rights in respect of the amounts owed. The Company manages its risk by dealing with reputable counterparties offering a low risk of default. The financial position of the counterparties is regularly reviewed.
At year-end, within the Company and the Group, an insignificant level of debt was substantially past due and the majority of debt outstanding at the balance sheet date has been received post year-end. There were no trade debtors of the Group that were more than 90 days past due at 31 December 2017 (2016: £Nil).
Liquidity Risk
Liquidity risk arises as a result of the possibility that the Company may not have sufficient cash funds to meet its liabilities as they fall due.
Below is a maturity analysis of the Group’s and the Company’s undiscounted liabilities at the balance sheet date:
2017 | 2017 | 2016 | 2016 | ||||||
Financial liabilities | Maturity | Group | Company | Group | Company | ||||
£’000 | £’000 | £’000 | £’000 | ||||||
Owed to parent | < 12 mths | 228 | - | 191 | - | ||||
Owed to subsidiaries | < 12 mths | - | 39,305 | - | 54,336 | ||||
Deferred income | < 12 mths | 777 | 773 | - | - | ||||
Other creditors | < 12 mths | 3,786 | 3,805 | 1,620 | 1,593 | ||||
Unfunded pension liability | < 12 mths | 828 | 828 | 847 | 847 | ||||
Accruals | < 12 mths | 42,823 | 22,225 | 35,387 | 17,627 | ||||
Owed to parent | > 12 mths | 20,048 | 20,048 | 5,822 | 5,822 | ||||
Deferred income | > 12 mths | 5,155 | 5,155 | - | - | ||||
Other creditors | > 12 mths | 24,005 | 18,821 | 11,346 | 7,077 | ||||
97,650 | 110,960 | 55,213 | 87,302 |
The Company’s liquidity risk relates to its cash dealings with clients, day-to-day trading activity, the funding of operational expenses and meeting solvency requirements as determined by the regulator (Financial Conduct Authority). The maintenance of liquidity is reported and monitored by senior management on a regular basis.
25. FINANCIAL RISK MANAGEMENT OBJECTIVES AND STRATEGY (continued)
Interest Rate Risk
While not the primary focus of the Group, the nature of the business gives rise to large cash balances being held and consequently potentially significant interest receipts. The Group’s Finance department aims to mitigate the interest rate risk by continually
43
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
monitoring the cash position of the Group and seeks the optimal level of cash to place on deposit given the Group’s liquidity requirements.
If the average rate of interest was 2% higher during the year based upon the year-end cash position, an additional £1.6m interest would have been earned.
Market Risk – Foreign Exchange
Market risk is the possibility for the Group to experience losses due to factors that affect the overall performance of the financial markets in which the Group is involved. One key factor is foreign currency exchange risk as the Group receives income and incurs expenses in foreign currencies.
Due to a net exposure to foreign currency movements, the Group partially hedges this exposure through the use of foreign currency forward contracts (see note 18 for further disclosures).
26. RELATED PARTY TRANSACTIONS
(a) General information and disclosure exemptions
Subsidiaries
The Company prepares Group accounts into which its subsidiaries are consolidated. The Company has not disclosed related party transactions with wholly-owned subsidiaries as it is taking advantage of the exemption in FRS 102.
Hermes Group Pension Scheme
Certain activities of the Scheme were carried out by the Hermes Group, all of the costs of which are borne by the Company. These costs have not been apportioned for accounting purposes between those attributable to the Scheme and those attributable to the Hermes Group, as functions maintained for both entities cannot be divided meaningfully between them.
44
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
26. | RELATED PARTY TRANSACTIONS (continued) |
(b) Related-party transactions
During the year there were transactions with the following related parties:
The following fees were paid to BT Pension Scheme Management Limited (BTPSM) in respect of services provided to the Hermes Group.
2017 | 2016 | |||
£’000 | £’000 | |||
P Spencer (Chairman & Non-Executive Director Fee) | - | 25 | ||
W McClory (Non-Executive Director Fee) | - | 20 | ||
Total | - | 45 |
Central allocated costs from the Company to BTPSM totalled £2,452,604 during the year (2016: £3,350,035). An amount was due to the Company from BTPSM totalling £507,132 at year-end (2016: £1,285,035).
The following transactions occurred during the year with joint ventures:
• | Hermes GPE LLP (HGPE) |
Central allocated costs from the Company to HGPE totalled £1,750,000 during the year (2016: £1,350,000). An amount was due to the Company from HGPE totalling £13,532 at year-end (2016: £11,268).
The amounts outstanding above for HEEL and HGPE are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties.
The following transactions occurred during the year with other related parties:
• | Directors’ transactions |
During the year ended 31 December 2017 the company advanced one of the directors an unsecured loan totalling £300,000. Interest was charged at the HMRC beneficial loan rate. There were no loans to Directors in the year ended 31 December 2016.
• | Other related-party transactions |
The key management personnel are the Executive Directors and the Executive Committee.
The total remuneration for key management personnel for the period totalled £8,022,612 (2016: £5,993,866), being remuneration disclosed in note 7 of £4,964,621 (2016: £4,092,056) and remuneration provided to other key management personnel of £3,057,991 (2016: £1,901,810).
45
HERMES FUND MANAGERS LIMITED
NOTES TO THE FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2017 (continued)
27. NON-CONTROLLING INTEREST – EQUITY
The non-controlling interest liability of £Nil (2016: £239,000) included within the consolidated balance sheet and debit of £168,000 (2016: debit of £243,000) included within the consolidated profit and loss account relate to a 0% shareholding (2016: 9.51%) in Hermes European Equities Limited, which was owned by an individual Director of the entity. During 2017, HFML purchased all of these shares from the Director and HEEL is now a wholly owned subsidiary.
28. ULTIMATE PARENT UNDERTAKING AND CONTROLLING PARTY
The Directors regard the BT Pension Scheme as the Company’s immediate and ultimate parent and controlling entity. The financial statements of the BT Pension Scheme can be obtained at One America Square, 17 Crosswall, London, United Kingdom, EC3N 2LB.
29. SUBSEQUENT EVENTS
There were no subsequent events material to the financial statements from the balance sheet date, 31 December 2017, to the date of approval of the financial statements, 4 April 2018.