TIDM75AS TIDMHGG
RNS Number : 5127I
HGI Group Limited
15 June 2011
HGI Group Limited
2010 Report and Financial Statements: Listing Rule 17.3.4 and
Disclosure and Transparency Rule 6.3.5
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR
DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA OR JAPAN.
15 June 2011
HGI Group Limited ("the Company"), which has GBP142,600,000 6.50
per cent Notes in issue due May 2012 and is a wholly owned
subsidiary of Henderson Group plc, releases its Report and
Financial Statements for the year end 31 December 2010, in
accordance with Listing Rule 17.3.4 and Disclosure and Transparency
Rule 6.3.5. References to "the Group" refer to HGI Group Limited
and its controlled entities and references to "the Henderson Group"
refer to Henderson Group plc and its controlled entities.
Business review - Group
2010 2009
GBPm GBPm
--------------------------------------- --------- ---------
Management fees (net of commissions) 214.6 148.5
Transaction fees 34.3 17.1
Performance fees 41.0 30.6
--------------------------------------- --------- ---------
Total fee income 289.9 196.2
Finance income 3.6 4.0
--------------------------------------- --------- ---------
Total income 293.5 200.2
--------------------------------------- --------- ---------
Operating costs (268.5) (186.0)
Finance costs (8.7) (8.9)
--------------------------------------- --------- ---------
Total expenses (277.2) (194.9)
--------------------------------------- --------- ---------
Underlying profit 16.3 5.3
--------------------------------------- --------- ---------
Intangible amortisation (0.3) (0.3)
--------------------------------------- --------- ---------
Recurring profit before tax 16.0 5.0
Non-recurring items (0.1) (36.2)
--------------------------------------- --------- ---------
Profit/(loss) before tax 15.9 (31.2)
--------------------------------------- --------- ---------
Tax on recurring operations (17.8) (2.7)
Tax on non-recurring items 16.4 8.6
--------------------------------------- --------- ---------
Total tax (1.4) 5.9
--------------------------------------- --------- ---------
Profit/(loss) after tax 14.5 (25.3)
--------------------------------------- --------- ---------
Attributable to:
Equity holders of the parent 14.5 (25.4)
Minority interests - 0.1
--------------------------------------- --------- ---------
14.5 (25.3)
--------------------------------------- --------- ---------
Underlying Business
During FY10 the New Star retail business was transferred into
the Group. It had previously been undertaken by a Henderson Group
company outside of the Group. In addition, the merger of several
New Star funds with Henderson funds brought this business into the
Group. This resulted in increased revenue and administration
expenses for the Group in 2010.
Fee income
Total fee income increased by 48% to GBP289.9m from GBP196.2m in
FY09. Management fee income increased by 45% to GBP214.6m from
GBP148.5m in FY09, due to the impact of higher margin net inflows,
higher market levels and the transfer of the New Star retail
business. The FTSE 100 Index was, on average, 20% higher in FY10
compared to FY09.
Transaction fees increased by 101% to GBP34.3m from GBP17.1m in
FY09, primarily due to fees earned on UK Wholesale funds (including
New Star) and transactions earned by the Property business.
Performance fees increased by 35% to GBP41.0m from GBP30.6m in
FY09, primarily due to fees earned from institutional mandates.
Finance income
Finance income in FY10 decreased by GBP0.4m to GBP3.6m,
primarily due to lower cash balances and lower interest rates.
Operating costs
Operating costs increased by GBP82.3m to GBP268.3m in FY10. The
main components are shown in the table below:
FY10 FY09
Audited Audited
GBPm GBPm
------------------------------------- ---------- ----------
Employee compensation and benefits 162.2 119.1
Investment administration 22.4 15.6
Information technology 13.5 10.2
Office expenses 16.6 15.2
Depreciation 3.1 3.2
Other expenses 50.7 22.7
------------------------------------- ---------- ----------
Operating costs 268.5 186.0
------------------------------------- ---------- ----------
Employee compensation and benefits increased GBP43.1m to
GBP162.2m (FY09: GBP119.1m). Within this, fixed staff costs
increased by GBP1.4m, reflecting the impact of New Star for a full
year and salary inflation, whilst variable staff costs increased by
GBP41.7m, driven by improved Group profitability. The average
number of full-time employees increased by 17 in FY10 to 877 (FY09:
860). The compensation ratio has decreased by 4.3% during FY10 to
55.2% (FY09: 59.5%) mainly as a result of an increase in fee income
due to better market conditions and the inclusion of the New Star
retail business.
Investment administration costs increased by GBP6.8m to
GBP22.4m, primarily due to the transfer of the New Star retail
business to the Group. Information technology costs increased by
GBP3.3m to GBP13.5m due to the write-off of capitalised software
costs, inflation and market data costs relating to the legacy New
Star business.
Other expenses increased by GBP28.0m to GBP50.7m, of which
GBP3.0m represents costs incurred in relation to the potential
acquisition of RidgeWorth Capital Management, Inc. (RidgeWorth) on
which the Group terminated discussions in June 2010. In addition,
the Group has continued to invest in targeted strategic business
development, in particular, relating to the UK Retail business,
through marketing, events and promotions, with an impact of
GBP6.2m. The Group has also seen an increase in irrecoverable VAT
of GBP4.0m offset by net foreign exchange gains in FY10 of GBP0.1m
(FY09: GBP0.3m loss). Also included in operating costs is a charge
from Henderson Group of brand management services of GBP14.5m
(FY09:GBPnil).
Finance costs
Finance costs in FY10 were GBP8.7m, GBP0.2m lower than FY09, and
continue to include the amortisation of the profit arising from an
interest rate swap on debt in December 2008. The unamortised profit
on the interest rate swap as at 31 December 2010 stood at GBP4.1m
and will be amortised over the residual term of the debt, which
matures on 2 May 2012.
Non-recurring Items
There were two non-recurring items in FY10 resulting in a net
pre-tax charge of GBP0.1m (FY09: GBP36.2m charge), but a post-tax
credit of GBP16.3m (FY09: GBP27.6m charge) as shown below:
FY10 FY09
Audited Audited
GBPm GBPm
----------------------------------------- ---------- ----------
FSCS interim levy (5.9) -
Towry Law International provision
release 5.8 -
Impairment of seed capital investments
in three property funds - (7.3)
Infrastructure fund charge - (20.7)
Insurance recoveries - 8.8
New Star integration costs - (17.0)
----------------------------------------- ---------- ----------
Non-recurring items before tax (0.1) (36.2)
Tax on non-recurring items - 8.6
Non-recurring tax 16.4 -
----------------------------------------- ---------- ----------
Non-recurring items after tax 16.3 (27.6)
----------------------------------------- ---------- ----------
FSCS interim levy
In November 2010, the FSCS indicated that it would raise an
interim levy on investment managers in respect of claims received
primarily from investors in Keydata Investment Services Limited (in
administration). The Group has provided for this levy in full
during 2010.
Towry Law International provision release
During the second half of 2010, the majority of a previously
recognised product mis-selling provision, relating to legacy Towry
Law International products, was deemed no longer required and was
released. This resulted in a GBP5.8m credit in 2010.
Non-recurring tax
During the second half of 2010, HMRC closed enquiries into
certain prior year tax filings, resulting in the Group releasing
tax provisions of GBP16.4m.
Pension schemes
The Group has three types of pension schemes. A defined benefit
scheme and a defined contribution scheme, together forming the
Henderson Group Pension Scheme (Pension Scheme), and three small
unapproved pension top-up schemes for previous executives.
There was a net surplus in the Pension Scheme of GBP112.5m at 31
December 2010 (FY09: GBP90.0m). The increase in the Pension Scheme
surplus during 2010 is due to better than expected returns on the
asset portfolio and a lower assumption for future price inflation,
based on the Bank of England's published price inflation curve, set
at 3.6% per annum (2009: 3.7% per annum). These increases were
partially offset by a lower discount rate used to value the Pension
Scheme's liabilities for accounting purposes, set by reference to
AA-rated corporate bonds with approximately 20 years' duration,
down to 5.4% per annum from 5.6% per annum in 2009.
The liability in respect of the Group's unapproved pension
schemes amounted to GBP6.2m at 31 December 2010 (FY09:
GBP6.1m).
Outlook
Keeping the Group's clients' needs at the centre of everything
we do will drive our success. Joined-up thinking across product
development, fund management, sales and client service, should
ensure that the Group provides clients with more valuable
investment products. We continue our efforts in making this
business more efficient and more profitable and ultimately,
increasing the value of our franchise.
By combining organic growth with being alert to opportunities to
accelerate our strategic goals, the overriding focus remains our
clients and ensuring that we have the capabilities required to help
them achieve their investment objectives.
We are optimistic about the outlook for markets. We are well
positioned to grow our existing product range and develop new
products to distribute through all the channels in all the
geographies in which we operate.
Dividends
The Directors did not declare an interim dividend (2009: GBPnil)
for the Company. The Directors have not recommended the payment of
a final dividend (2009: GBPnil) for the Company. Note 10 to the
financial statements sets out the involvement the Group has in
paying a dividend for the Henderson Group.
Gartmore Acquisition
On 4 April 2011, the Henderson Group acquired the entire issued
share capital of Gartmore Group Limited (Gartmore Acquisition). The
acquisition will reinforce the Henderson Group's position as a
diversified fund manager with product strength in traditional
long-only and absolute return offerings and will significantly
enhance the Group's presence in UK retail asset management.
Integration of Gartmore is expected to be completed during 2011. On
4 April 2011 the Gartmore group was transferred down from Henderson
Group plc to the Group.
Debt Instrument issue and exchange
On 18 March 2011, Henderson UK Finance plc, a subsidiary of the
Group, incorporated on 9 February 2011 announced an issue of
GBP150,000,000 7.25% p.a. notes due on 24 March 2016 (the Notes).
The Notes are unconditionally and irrevocably guaranteed within the
Group and by Henderson Group plc. As part of the issue of the debt,
GBP32.4m of loan notes issued by the Company were exchanged with
Henderson UK Finance plc leaving a notional GBP142.6m of the
Company's notes outstanding.
Risk management
We have a framework in place which embeds the management of risk
at all levels within the organisation. The framework also ensures
that we meet our business objectives without exceeding our risk
appetite; and is subject to continuous review to ensure it
recognises both new and emerging risks in the business. The Group's
risk management and capital disclosures in accordance with chapter
11 of the FSA's Prudential Sourcebook for Banks, Building Societies
and Investment Firms (Pillar 3 disclosures) are available on the
Henderson Group website at www.henderson.com.
Key risks and their mitigation
The key risks faced by the Group fall into a number of distinct
categories and the means adopted to mitigate them are both varied
and relevant to the nature of the risk concerned. These are set out
below in alphabetical order of the key risks:
Key Risks Description Mitigation
------------------ ---------------------------- ----------------------------
Acquisition The Henderson Group's The Henderson Group only
long-term strategy considers acquisitions
involves its willingness where they fit with its
to consider the strategic goals and meet
acquisition of businesses. its financial criteria
In addition to financial such that Henderson Group
risks, this introduces the can realise value for its
risk of organisational shareholders. Thorough due
stress through the diligence is performed
potential demands made on before any acquisition is
staff and resources made and this includes
through the need to assessing the ability of
integrate acquired the Henderson Group to
businesses. successfully integrate the
acquired business.
------------------ ---------------------------- ----------------------------
Business Business disruption risk The Henderson Group has in
disruption is the risk of the place business continuity
occurrence of events which plans designed to ensure
could have a material that, should an event
impact on the operations occur, it could maintain
of the business. its operations without
irreparable damage being
done to the business.
These plans are regularly
tested. The Henderson
Group also has insurance
arrangements should loss
of revenue occur through
business interruption.
------------------ ---------------------------- ----------------------------
Credit Credit risk is the risk of The Henderson Group has an
a counterparty to the established credit risk
Henderson Group defaulting policy to ensure its
on Henderson Group funds counterparties meet strict
deposited with it or the minimum rating
non-receipt of a trade requirements consistent
debt. with the Henderson Group's
risk appetite; and the
Henderson Group Credit
Risk Committee meets
regularly to approve,
review and set limits for
all new and existing
counterparties. In
addition, the Henderson
Group has many clients
that have fees deducted
directly from their assets
or alternatively are
billed regularly with
strict payment terms.
------------------ ---------------------------- ----------------------------
Key personnel Key personnel risk is the The Henderson Group
risk of the Henderson operates competitive
Group losing either a remuneration structures
member of its Senior designed to recognise and
Management Team or one of reward outperformance. It
the Henderson Group's key also has succession
investment or distribution planning to ensure that
professionals. This could there is cover for key
have an adverse effect on roles should they become
both the growth of the vacant. In addition, staff
Henderson Group business surveys identify any
and/or the retention of issues which could
existing business. adversely impact staff
retention and
comprehensive training is
offered ensuring skills
and knowledge reside in
more than one individual.
------------------ ---------------------------- ----------------------------
Foreign currency Foreign currency risk is The Henderson Group
the risk that the mitigates this risk
Henderson Group will through the effect of
sustain losses through natural hedges i.e.
adverse movements in holding financial assets
exchange rates. and liabilities of equal
value in the same
currency; by limiting the
net exposure to an
individual currency; and
by entering into hedging
instruments such as
foreign exchange
contracts, which are
primarily used to hedge
available-for-sale
financial assets. The
Henderson Group Hedge
Committee oversees the
risk and reports to the
Henderson Group Board
monthly.
------------------ ---------------------------- ----------------------------
Investment Investment performance The Henderson Group
performance risk is the risk that mitigates this risk with a
funds fail to achieve robust investment process
performance hurdles or which includes detailed
benchmarks. The effect of research. It also has a
this might be that clients clearly articulated
redeem investments, which investment philosophy and
in turn would result in a analyses' its funds by
reduction in fees earned comparing their
by the Henderson Group. performance against
Poor fund performance will appropriate benchmarks.
also result in lower
performance fees.
------------------ ---------------------------- ----------------------------
Liquidity Liquidity risk is the risk The Henderson Group manages
that the Henderson Group its liquidity on a daily
may be unable to meet its basis within its Finance
payment obligations as function, which ensures that
they fall due. the Henderson Group has
sufficient cash and/or
highly liquid assets
available to meet its
liabilities. The Henderson
Group ensures that it has
access to funds to cover all
forecast commitments for at
least the following 12
months. The Henderson Group
does not bear any liquidity
risk associated with its
clients' funds and has no
obligation to provide
short-term liquidity to its
clients.
-------------- ------------------------------ ------------------------------
Market Market risk is the risk The Henderson Group
that market conditions mitigates the market risk on
lead to a decline in the the Group's
value of the Henderson available-for-sale assets by
Group's available-for-sale investing in a diversified
financial assets and/or range of assets; and
a reduction in the value mitigate a fall in the value
of its clients' AUM, which of its clients' AUM by
would result in a reduction having a broad range of
in the level of the fees clients by distribution
that are based on the value channel, product, asset
of its clients' AUM. class and region. In
addition, the Henderson
Group actively seeks fee
bases which are not solely
related to market value of
AUM. It also makes a
significant amount of its
expense base variable and
therefore capable of
reduction, without having a
significant impact on the
Group's operating
capability.
-------------- ------------------------------ ------------------------------
Operational Operational risk is the risk The Henderson Group operates
that the Henderson Group a system of controls which
will sustain losses through is designed to ensure
inadequate or failed operational risks are
internal processes, people, mitigated to the required
systems and external level. The operation and
events. effectiveness of the
controls are regularly
assessed and confirmed
through the work of the
Henderson Group's assurance
functions: Risk Management,
Compliance and Internal
Audit.
-------------- ------------------------------ ------------------------------
Outsourcing Outsourcing risk is the risk The Henderson Group oversees
of failure in respect of the the operation of its TPAs to
provision of services by ensure key performance
third party administrators standards are met. It holds
(TPAs). Any significant regular meetings with its
interruption in services or TPAs to discuss any service
deterioration in performance concerns or problems and
could damage the Henderson work in partnership with
Group's operations. TPAs to deliver solutions.
Furthermore, if the The Henderson Group's
contracts with any of the assurance functions also
TPAs are terminated, the review controls operated by
Henderson Group may not be its major TPAs. The
able to find alternative financial strength of a TPA
TPAs on a timely basis or on is given careful
equivalent terms. consideration when contracts
are awarded and also if a
material deterioration
should occur in a TPA's
financial strength.
-------------- ------------------------------ ------------------------------
Regulatory Regulatory risk is the risk The Henderson Group
that a change in laws and continuously monitors
regulations will materially regulatory developments and
affect the Henderson Group's where there is likely to be
business or markets in which an impact, it has working
it operates. The Henderson groups in place to implement
Group's business is subject the changes. The Henderson
to many regulations in Group Compliance team in
different jurisdictions and particular monitor ongoing
currently the pace of change regulatory obligations and
is significant and may engage in dialogue with the
affect its business either main regulator.
directly or indirectly by
reducing investors' appetite
for its products, increasing
capital requirements or in
some other way.
-------------- ------------------------------ ------------------------------
Reputational Reputational risk is the The Henderson Group believes
risk that negative publicity that reputational risk is
regarding the Henderson mitigated through the
Group will lead to a loss of effective mitigation of the
revenue or litigation. The other key risks. In
risk of damage to the addition, it regularly
Henderson Group's reputation updates its clients and the
is more likely to result market and in doing so,
from one of the risks mitigates the risk of
described above reputational damage.
materialising rather than as
a standalone risk.
-------------- ------------------------------ ------------------------------
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RELATION TO THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Directors' report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have prepared
the financial statements in accordance with International Financial
Reporting Standards (IFRS). Under company law the Directors must
not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the company
and of the profit or loss of the company for that period. In preparing
these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and estimates that are reasonable and prudent;
-- state whether applicable IFRS have been followed, subject to any
material departures disclosed and explained in the financial statements;
and
-- prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the company will continue in
business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company's transactions
and disclose with reasonable accuracy at any time the financial position
of the Company and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
Andrew Formica
Director
15 June 2011
Shirley Garrood
Director
15 June 2011
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2010
2010 2009
Notes GBPm GBPm
----------------------------------------------- ------- --------- ---------
Income
Gross fee income and commissions 3 392.6 250.3
Finance income 3 3.6 4.0
----------------------------------------------- ------- --------- ---------
Gross income 396.2 254.3
Commissions and fees payable 3 (102.7) (54.1)
----------------------------------------------- ------- --------- ---------
Total income 293.5 200.2
----------------------------------------------- ------- --------- ---------
Expenses
Operating costs 4.1 (265.4) (182.8)
Depreciation 14 (3.1) (3.2)
----------------------------------------------- ------- --------- ---------
Total expenses before finance costs (268.5) (186.0)
Finance costs 6 (8.7) (8.9)
----------------------------------------------- ------- --------- ---------
Total expenses (277.2) (194.9)
----------------------------------------------- ------- --------- ---------
Underlying profit before tax 16.3 5.3
Intangible amortisation 12 (0.3) (0.3)
Recurring profit before tax 16.0 5.0
Non-recurring items 7 (0.1) (36.2)
----------------------------------------------- ------- --------- ---------
Profit/(loss) before tax 15.9 (31.2)
Tax on recurring profit / (loss) (17.8) (2.7)
Tax on non-recurring items - 8.6
Non-recurring tax 7 16.4 -
Total Tax 8 (1.4) 5.9
----------------------------------------------- ------- --------- ---------
Profit/(loss) after tax 14.5 (25.3)
----------------------------------------------- ------- --------- ---------
Attributable to:
Equity holders of the parent 14.5 (25.4)
Non-controlling interests - 0.1
----------------------------------------------- ------- --------- ---------
14.5 (25.3)
----------------------------------------------- ------- --------- ---------
Dividends
Dividends declared and charged to equity
during the year 10 49.0 47.9
Dividends proposed 10 38.8 34.1
----------------------------------------------- ------- --------- ---------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2010
2010 2009
Notes GBPm GBPm
---------------------------------------------- ------- ------- --------
Profit/(loss) after tax 14.5 (25.3)
Other comprehensive income
Exchange differences on translation of
foreign operations (4.4) (0.8)
Available-for-sale financial assets:
Exchange differences on translation - (2.9)
Translation reserve transfer on sale - (1.1)
Translation reserve transfer on impairment (0.3) 0.5
Net gains/(losses) on revaluation 2.9 (8.2)
Revaluation reserve transfer on sale - 5.6
Revaluation reserve transfer on impairment - 6.8
Tax effect of available-for-sale financial
assets movements 8 (0.6) (0.6)
Actuarial gains/(losses):
Actuarial gains/(losses) on defined benefit
pension schemes 20 14.8 (69.7)
Actuarial gains on post-retirement medical
benefits 0.2 0.1
Tax effect of actuarial (gains)/losses 8 (3.9) 19.4
---------------------------------------------- ------- ------- --------
Other comprehensive income/(expense)
after tax 8.7 (50.9)
---------------------------------------------- ------- ------- --------
Total comprehensive income (expense) 23.2 (76.2)
---------------------------------------------- ------- ------- --------
Attributable to:
Equity holders of the parent 23.4 (76.3)
Non-controlling interests - 0.1
---------------------------------------------- ------- ------- --------
23.2 (76.2)
---------------------------------------------- ------- ------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2010
2010 2009
Notes GBPm GBPm
------------------------------------------------------- ------- --------- --------
Non-current assets
Intangible assets 12 225.1 226.3
Investments accounted for using the equity
method 13.2 5.1 5.0
Plant and equipment 14 20.0 22.0
Retirement benefit assets 20 112.5 90.0
Deferred tax assets 22 29.5 7.0
Deferred acquisition and commission costs 16 47.8 29.1
------------------------------------------------------- ------- --------- --------
440.0 379.4
Current assets
Available-for-sale financial assets 15 30.7 27.3
Financial assets at fair value through profit
or loss 15 1.2 0.6
Trade and other receivables 17 368.1 297.6
Deferred acquisition and commission costs 16 42.8 24.9
Cash and cash equivalents 18.1 157.1 84.5
------------------------------------------------------- ------- --------- --------
599.9 434.9
------------------------------------------------------- ------- --------- --------
Total
assets 1,039.9 814.3
------------------------------------------------------- ------- --------- --------
Non-current liabilities
Debt instrument in issue 19 179.1 181.9
Retirement benefit obligations 20 6.2 6.1
Provisions 21 11.0 20.9
Deferred tax liabilities 22 33.1 30.1
Deferred income 47.5 27.3
------------------------------------------------------- ------- --------- --------
276.9 266.3
Current liabilities
Trade and other payables 24 404.1 285.3
Provisions 21 22.6 13.1
Deferred income 43.2 24.5
Current tax liabilities 13.3 12.9
------------------------------------------------------- ------- --------- --------
483.2 335.8
------------------------------------------------------- ------- --------- --------
Total liabilities 760.1 602.1
------------------------------------------------------- ------- --------- --------
Net assets 279.8 212.2
------------------------------------------------------- ------- --------- --------
Capital and reserves
Share capital 25 90.6 90.6
Share premium 195.1 195.1
Translation reserve (3.1) 1.6
Revaluation reserve 4.9 2.0
Profit and loss reserve (8.1) (77.5)
------------------------------------------------------- ------- --------- --------
Shareholder's equity 279.4 211.8
Non-controlling interests 27 0.4 0.4
------------------------------------------------------- ------- --------- --------
Total equity 279.8 212.2
------------------------------------------------------- ------- --------- --------
The financial statements were approved by the Board of Directors and
authorised for issue on 15 June 2011. They were signed on its behalf
by:
S J Garrood
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2010
Profit
Share Share Translation and Non-controlling Total
capital premium reserve Revaluation loss interests equity
---------------- --------- --------- ------------- ----------------- --------
reserve reserve
---------------- --------- --------- ------------- ------------- --------- ----------------- --------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January
2009 90.6 195.1 5.9 (2.1) 30.6 0.3 320.4
Total
comprehensive
income net of
tax - - (4.3) 4.1 (76.1) 0.1 (76.2)
Dividends paid
to equity
shareholders - - - - (47.9) - (47.9)
Capital
contribution
from
Henderson
Group plc in
relation to
share based
payments - - - - 15.9 - 15.9
At 31 December
2009 90.6 195.1 1.6 2.0 (77.5) 0.4 212.2
Total
comprehensive
income net of
tax - - (4.7) 2.9 25.0 - 23.2
Dividends paid
to equity
shareholders - - - - (49.0) - (49.0)
Capital
contribution
from
Henderson
Group plc in
relation to
share based
payments - - - - 17.9 - 17.9
Tax movement
on share
scheme
expenses - - - - 25.5 - 25.5
Capital
contribution
from
immediate
parent - - - - 50.0 - 50.0
At 31 December
2010 90.6 195.1 (3.1) 4.9 (8.1) 0.4 279.8
---------------- --------- --------- ------------- ------------- --------- ----------------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2010
2010 2009
Notes GBPm GBPm
------------------------------------------------- ------- -------- --------
Cash flows from operating activities
Profit/(loss) before tax 15.9 (31.2)
Adjustments to reconcile profit/(loss) before
tax to net cash flows from operating
activities:
- debt instrument interest expense 6 8.5 8.8
- share-based payment charges 9.2 17.9 15.9
- intangible amortisation 12 0.3 0.3
- computer software disposal 12 0.9 -
- share of profit of associates and joint
ventures 13.2 (1.3) (0.7)
- depreciation of plant and equipment 14 3.1 3.2
- available-for-sale financial assets
impairment 15 1.8 7.3
- (gain)/loss on disposal of available-for-sale
financial assets (0.2) 0.6
- net deferred acquisition and commission costs
and deferred income amortisation 3 0.9 (3.5)
- contributions to the Henderson Group Pension
Scheme in excess of costs recognised (7.5) (5.6)
- Towry Law provision release 21 (5.8) -
- other provision release 21 (0.1) -
------------------------------------------------- ------- -------- --------
Cash flows from operating activities before
changes in operating assets and liabilities 34.4 (4.9)
Changes in operating assets and liabilities 18.2 103.6 9.9
Net tax received/(paid) 2.7 (0.5)
------------------------------------------------- ------- -------- --------
Net cash flows from operating activities 140.7 4.5
------------------------------------------------- ------- -------- --------
Cash flows from investing activities
Proceeds from sale of available-for-sale
financial assets 8.1 16.3
Dividends from associates and distributions
from joint ventures 1.4 0.9
Purchases of:
- available-for-sale financial assets 14 (10.4) (4.8)
- plant and equipment 12 (0.8) (3.6)
- intangible assets - (0.5)
- interests in investments in associates and
joint ventures (0.2) (0.4)
------------------------------------------------- ------- -------- --------
Net cash flows from investing activities (1.9) 7.9
------------------------------------------------- ------- -------- --------
Cash flows from financing activities
Dividends paid to equity shareholders 10 (49.0) (47.9)
Interest paid on debt instrument in issue (11.4) (11.4)
------------------------------------------------- ------- -------- --------
Net cash flows from financing activities (60.4) (59.3)
------------------------------------------------- ------- -------- --------
Effects of exchange rate changes (5.8) (1.3)
------------------------------------------------- ------- -------- --------
Net increase/(decrease) in cash and cash
equivalents 72.6 (48.2)
Cash and cash equivalents at beginning of year 18.1 84.5 132.7
------------------------------------------------- ------- -------- --------
Cash and cash equivalents at end of year 18.1 157.1 84.5
------------------------------------------------- ------- -------- --------
COMPANY STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2010
2010 2009
Notes GBPm GBPm
---------------------------------------------- ------- ------- --------
Profit/(loss) after tax 1.7 (50.2)
Actuarial gains/(losses) on defined benefit
pension schemes 20 14.8 (68.5)
Tax effect of actuarial (gains/losses) 22 (3.8) 19.2
---------------------------------------------- ------- ------- --------
Other comprehensive income/(expense) after
tax 11.0 (49.3)
Comprehensive income/(expense) 12.7 (99.5)
---------------------------------------------- ------- ------- --------
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2010 Registered number 2072534
2010 2009
Notes GBPm GBPm
------------------------------ ------- --------- ---------
Non-current assets
Investment in subsidiaries 13.1 968.0 871.7
Retirement benefit assets 20 112.5 90.0
------------------------------ -------
1,080.5 961.7
Current assets
Trade and other receivables 17 194.3 376.2
Cash and cash equivalents 18.1 10.8 8.9
------------------------------ ------- --------- ---------
205.1 385.1
------------------------------ ------- --------- ---------
Total assets 1,285.6 1,346.8
------------------------------ ------- --------- ---------
Non-current liabilities
Debt instrument in issue 19 179.1 181.9
Provisions 21 - 5.8
Deferred tax liabilities 22 9.8 6.0
------------------------------ ------- --------- ---------
188.9 193.7
Current liabilities
Borrowings 23 500.2 549.0
Trade and other payables 24 273.5 342.7
Provisions 21 0.3 0.5
Current tax liabilities 0.2 1.1
------------------------------ ------- --------- ---------
774.2 893.3
------------------------------ ------- --------- ---------
Total liabilities 963.1 1,087.0
------------------------------ ------- --------- ---------
Net assets 322.5 259.8
------------------------------ ------- --------- ---------
Capital and reserves
Share capital 25 90.6 90.6
Share premium 195.1 195.1
Profit and loss reserve 36.8 (25.9)
------------------------------ ------- --------- ---------
Total equity 322.5 259.8
------------------------------ ------- --------- ---------
The financial statements were approved by the Board of Directors and
authorised for issue on 15 June 2011. They were signed on its behalf
by:
S J Garrood
Director
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2010
Profit
and
Share Share loss
capital premium reserve Total
GBPm GBPm GBPm GBPm
-------------------------------- ---------- ---------- ---------- --------
At 1 January 2009 90.6 195.1 73.6 359.3
Total comprehensive expense
net of tax (99.5) (99.5)
At 31 December 2009 90.6 195.1 (25.9) 259.8
Capital contribution from
immediate parent - - 50.0 50.0
Total comprehensive income net
of tax - - 12.7 12.7
-------------------------------- ---------- ---------- ---------- --------
At 31 December 2010 90.6 195.1 36.8 322.5
-------------------------------- ---------- ---------- ---------- --------
COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2010
2010 2009
Notes GBPm GBPm
------------------------------------------------ ------- -------- ---------
Cash flows from operating activities
Profit/(loss) before tax 1.9 (49.1)
Adjustments to reconcile profit/(loss) before
tax to net cash flows from operating
activities:
- impairment of investment in subsidiaries 13.1 47.7 50.6
- contributions to the Henderson Group Pension
Scheme in excess of costs recognised (10.1) (10.0)
- write off of loan interest payable to
subsidiary (2.3) (9.2)
- release of provision 21 (5.8) -
- debt instrument expense 9.2 17.2
Cash flows from operating activities before
changes in operating assets and liabilities 40.6 (0.5)
Changes in operating assets and liabilities 18.2 (27.3) 60.1
------------------------------------------------ -------
Net cash flows from operating activities 13.3 59.6
------------------------------------------------ ------- -------- ---------
Cash flows from investing activities
Increase in investment in subsidiaries - (50.5)
------------------------------------------------ ------- -------- ---------
- (50.5)
Cash flows from financing activities
Loans received from subsidiary company - 127.0
Loans paid to parent company - (127.0)
Interest paid on long-term borrowings (11.4) (11.4)
------------------------------------------------ ------- -------- ---------
Net cash flows from financing activities (11.4) (11.4)
------------------------------------------------ ------- -------- ---------
Net increase/(decrease) in cash and cash
equivalents 1.9 (2.3)
Cash and cash equivalents at beginning of year 18.1 8.9 11.2
------------------------------------------------ ------- -------- ---------
Cash and cash equivalents at end of year 18.1 10.8 8.9
------------------------------------------------ ------- -------- ---------
1. Authorisation of financial statements and statement of
compliance with IFRS
The Group and Company financial statements for the year ended 31
December 2010 were authorised for issue by the Board of Directors
on 15 June 2011 and the respective statements of financial position
were signed on the Board's behalf by Shirley Garrood. HGI Group
Limited is a limited company incorporated in England and Wales and
tax resident in the United Kingdom.
The Group and Company financial statements have been prepared in
accordance with IFRS and the provisions of the Companies Act 2006.
The Company has taken advantage of the exemption under section 408
of the Companies Act 2006 not to present its own income Statement
within these financial statements.
The principal accounting policies adopted by the Group and by
the Company are set out in note 2.
2. Accounting policies
2.1 Significant accounting policies
Basis of preparation
The Group and Company financial statements have been prepared on
a going concern basis and on the historical cost basis, except for
certain financial instruments that have been measured at fair
value.
The Group and Company financial statements are presented in GBP
and all values are rounded to the nearest one hundred thousand
pounds (GBP0.1m), except when otherwise indicated.
Basis of consolidation
The consolidated financial statements of the Group comprise the
financial statements of HGI Group Limited and its subsidiaries as
at 31 December each year.
The financial statements of all the Group's significant
subsidiaries are prepared to the same year end date as that of the
Company. The accounts of all material subsidiaries are prepared
under either IFRS or UK GAAP. Where prepared under UK GAAP,
balances reported by subsidiaries are adjusted to meet IFRS
requirements for the purpose of the consolidated financial
statements.
The results of subsidiaries acquired or disposed of during the
year are included in the consolidated income statement from the
effective date of acquisition or up to the effective date of
disposal by the Group, as appropriate. Where there is a loss of
control of a subsidiary, the consolidated financial statements
include the results for the period of the reporting year during
which the Group had control. Non-controlling interests represent
the equity interests in subsidiaries not fully held by the
Group.
Interests in property closed-ended funds, private equity
infrastructure funds, Open-Ended Investment Companies (OEICs) and
unit trusts are accounted for as subsidiaries, associates, joint
ventures or other financial investments depending on the holdings
of the Group and on the level of influence and control that the
Group exercises. Strategic shareholder investments in associates,
where the Group has the ability to exercise significant influence
as well as joint ventures where there is joint control, are
accounted for using the equity method.
Income recognition
Fee income and commission receivable
Fee income includes management fees, transaction fees and
performance fees (including earned carried interest). Management
fees and transaction fees are recognised in the accounting period
in which the associated investment management or transaction
services are provided. Performance fees are recognised when the
prescribed performance hurdles have been achieved and it is
probable that the fee will crystallise as a result. The Group's
policy is to accrue 95% of the expected fee on satisfaction that
the recognition criteria have established a performance fee is due,
with the balance recognised on cash settlement. Initial fees and
commission receivable are deferred and amortised over the
anticipated period in which services will be provided, determined
by reference to the average term of investors in each product on
which commissions are earned. Other income is recognised in the
accounting period in which services are rendered.
Carried interest
The Group is entitled to receive a share of profits (carried
interest) from certain private equity funds it manages, once the
funds meet certain performance conditions. Where the funds'
investments constitute large volumes in relatively illiquid
markets, the Group does not deem it appropriate to recognise
unearned carried interest based on current fair values. However,
where the value of the carried interest will be determined by the
future disposal of investments which are quoted on a recognised
exchange, then the Group will recognise carried interest to the
extent deemed prudent. Carried interest for all other types of
investments is only recognised when investments are disposed of and
performance conditions are met.
Finance income
Interest income is recognised as it accrues using the effective
interest rate method. Dividend income from investments is
recognised on the date that the right to receive payment has been
established.
Realised and unrealised gains and losses on financial assets
See policy set out under financial instruments on page 23.
Operating leases
All leases are classified as operating leases. Operating lease
payments are recognised as an expense in the income statement on a
straight-line basis over the lease term. Benefits received and
receivable as an incentive to enter into an operating lease are
also spread on a straight-line basis over the lease term.
Post-employment benefits
The Group provides employees with retirement benefits through
both defined benefit and defined contribution schemes. The assets
of these schemes are held separately from the Group's general
assets in trustee administered funds.
Defined benefit obligations and the cost of providing benefits
are determined annually by independent qualified actuaries using
the projected unit credit method. The obligation is measured as the
present value of the estimated future cash outflows using a
discount rate based on AA rated corporate bond yields of
appropriate duration. The resulting surplus or deficit of defined
benefit assets less liabilities is recognised in the statement of
financial position. The Group's expense related to these schemes is
accrued over the employees' service lives, based upon the actuarial
cost for the accounting period, having considered interest costs
and the expected return on assets. Actuarial gains and losses are
recognised in the statement of comprehensive income in the
accounting period in which they occur. Normal contributions to the
defined contribution scheme are charged to the income statement as
they become payable in accordance with the rules of the scheme.
Other post-employment benefits, such as medical care and life
insurance, are also provided for certain employees. The costs of
such benefits are accrued over the employees' service lives, based
upon the actuarial cost for the accounting period using a
methodology similar to that for defined benefit pension
schemes.
Share-based payment transactions
The Group issues equity-settled and cash-settled share-based
payments to certain employees. The valuation methodology,
assumptions and schemes are disclosed in note 9.
Equity-settled share-based payments are measured at the fair
value of the equity instruments at the grant date. The awards are
expensed, with a corresponding increase in reserves, on either a
straight-line basis or a graded basis (depending on vesting
conditions) over the vesting period, based on the Group's estimate
of shares that will eventually vest. The expected life of the
awards used in the determination of fair value is adjusted for,
based on management's best estimate, the effects of
non-transferability, exercise restrictions, market performance and
behavioural considerations.
The cost of cash-settled transactions is measured initially at
fair value at the grant date. The fair value is expensed over the
period until vesting, with recognition of a corresponding
liability. The liability is remeasured at each reporting date up to
and including the settlement date, with changes in fair value
recognised in the income statement.
Income and sales taxes
The Group provides for current tax expense according to the tax
laws of each jurisdiction in which it operates, using tax rates
that have been enacted or substantively enacted by the reporting
date.
Deferred tax is provided, using the liability method, on
temporary differences at the reporting date between the tax bases
of assets and liabilities and their carrying amounts for financial
reporting purposes. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised. Deferred tax assets or
liabilities are not recognised if they arise from goodwill,
however, they are recognised on separately identified intangible
assets. If the deferred tax arises from the initial recognition of
an asset or liability in a transaction, other than a business
combination, that at the time of the transaction affects neither
the accounting nor taxable profit or loss, it is not accounted for.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax liabilities are not recognised for taxable
differences arising on investments in subsidiaries, branches,
associates and joint ventures where the Group controls the timing
of the reversal of the temporary differences and where the reversal
of the temporary differences is not anticipated in the foreseeable
future.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised, based on tax rates and tax laws that have been enacted or
substantively enacted by the reporting date.
Income tax relating to items recognised in the statement of
comprehensive income is also recognised in that statement and not
in the income statement.
Expenses and assets are recognised net of the amount of sales
tax, except where the sales tax is not recoverable, in which case
the sales tax is recognised as part of the cost of acquisition of
the asset or as part of expenses. Receivables and payables are
stated with the amount of sales tax included. The net amount of
sales tax recoverable from, or payable, to the taxation authority,
is included separately in receivables or payables in the statement
of financial position.
Business combinations
Under the requirements of IFRS 3 Business Combinations, all
business combinations are accounted for using the purchase method
(acquisition accounting). The cost of a business combination is the
aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed and equity instruments
issued by the acquirer. The fair value of a business combination is
calculated at the acquisition date by recognising the acquiree's
identifiable assets, liabilities and contingent liabilities that
satisfy the recognition criteria, at their fair values at that
date. The acquisition date is the date on which the acquirer
effectively obtains control of the acquiree. The cost of a business
combination in excess of fair value of net identifiable assets or
liabilities acquired, including intangible assets identified, is
recognised as goodwill. Any costs incurred in relation to a
business combination after 1 July 2009 are expensed when the
services are received.
Goodwill
Goodwill arising on acquisitions is capitalised in the
consolidated statement of financial position. Goodwill on
acquisitions prior to 1 January 2004 is carried at its value on 1
January 2004 less any subsequent impairments.
Goodwill arising on investments in associates and joint ventures
is included within the carrying value of the equity accounted
investments.
Impairment of goodwill
Goodwill is reviewed for impairment annually or more frequently
if changes in circumstances indicate that the carrying value may be
impaired. For this purpose, management prepares a valuation for
each cash generating unit based on value in use. This valuation is
based on the approved forecasts for future years, extrapolated for
expected future growth rates, and discounted at the Group's risk
adjusted discount rate. Where the value in use is less than the
carrying amount, an impairment is recognised. Where goodwill forms
part of an entity or sub-group and the entity or sub-group or part
thereof is disposed of, the goodwill associated with the entity or
sub-group disposed of is included in the carrying amount of the
operation when determining the gain or loss on disposal. Any
impairment is recognised immediately through the consolidated
income statement and cannot subsequently be reversed.
Computer software
The costs of purchasing and developing computer software,
together with associated relevant expenditure, are capitalised
where it is probable that future economic benefits that are
attributable to the assets will flow to the Group and the cost of
the assets can be measured reliably. Computer software is included
in the statement of financial position as an intangible asset and
is recorded initially at cost and then amortised over its expected
useful life of between three and five years on a straight-line
basis.
Plant and equipment
Plant and equipment is valued at cost and depreciated on a
straight-line basis over its useful economic life of between two
and 20 years.
An item of plant and equipment is removed upon disposal or when
no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising on the
disposal of the asset, calculated as the difference between the net
disposal proceeds and the carrying amount of the item, is included
in the income statement in the year the item is sold or
retired.
Investments in subsidiaries
Investments by the Company in subsidiary undertakings are held
at cost less any impairment where circumstances indicate that the
carrying value may not be recoverable.
Equity accounted investments
Equity accounted investments comprise investments in associates
and joint ventures held by the Group. Investments are recognised
initially at cost. The investments are subsequently carried at cost
adjusted for the Group's share of profits or losses and other
changes in comprehensive income of the associate or joint venture,
less any dividends or distributions received by the Group. The
consolidated income statement includes the Group's share of profits
or losses for the year.
Deferred acquisition and commission costs
For investment management contracts, incremental acquisition
costs are deferred to the extent that they are recoverable out of
future income. This includes initial commission paid by the Group
in respect of certain investment products. These costs are
amortised over the period in which they are expected to be
recovered out of margins from matching revenues from related
contracts. At the end of each accounting period, deferred
acquisition and commission costs are reviewed for recoverability
against future margins from the related contracts in force at the
reporting date.
Placement fees are deferred and amortised over the expected
investment period of the fund. Where the actual investment period
is significantly shorter than expected, the amortisation rate is
accelerated accordingly.
Impairment of assets (excluding goodwill and financial
assets)
At each reporting date, the Group assesses whether there is any
indication that an asset may be impaired. Where an indicator of
impairment exists, the Group makes a formal estimate of the
recoverable amount, being the higher of an asset's fair value less
cost to sell, and its value in use. In assessing value in use, the
estimated future cash flows are discounted to their net present
value using a risk adjusted discount rate that reflects a current
market assessment of the time value of money and the risks specific
to the asset.
Where the carrying amount of an asset exceeds its recoverable
amount, the asset is considered to be impaired and is written down
to its recoverable amount. An impairment loss is recognised in the
income statement.
Financial instruments
Financial assets and liabilities are recognised in the statement
of financial position, when the Group becomes party to the
contractual provisions of an instrument, at fair value adjusted for
transaction costs, except for financial assets classified at fair
value through profit or loss, where transaction costs are
immediately recognised in the income statement. Financial assets
are derecognised when the rights to receive cash flows from the
investments have expired or where they have been transferred and
the Group has also transferred substantially all risks and rewards
of ownership. Financial liabilities cease to be recognised when the
obligation under the liability has been discharged, cancelled or
has expired.
Financial assets
Purchases and sales of financial assets are recognised at the
trade date, being the date when the purchase or sale becomes
contractually due for settlement. Delivery and settlement terms are
usually determined by established practices in the market
concerned.
Debt securities, equity securities and holdings in authorised
collective investment schemes are designated as either fair value
through profit or loss, or available-for-sale, and are measured at
subsequent reporting dates at fair value. The Group determines the
classification of its financial assets on initial recognition.
Financial assets classified as fair value through profit or loss
comprise the Group's manager box positions in OEICs and unit
trusts, which are recorded on a fair value basis. Where securities
are designated as fair value through profit or loss, gains and
losses arising from changes in fair value are included in the
income statement.
For available-for-sale financial assets, gains and losses
arising from changes in fair value which are not part of a
designated hedge relationship are recognised in the statement of
comprehensive income. When an asset is disposed of, the cumulative
changes in fair value, previously recognised in the statement of
comprehensive income, are taken to the income statement in the
current accounting period.
Unrealised gains and losses on financial assets represent the
difference between the fair value of financial assets at the
reporting date and cost or, if these have been previously revalued,
the fair value at the last reporting date. Realised gains and
losses on financial assets are calculated as the difference between
the net sales proceeds and cost or amortised cost.
Where a fall in the value of an investment is prolonged or
significant, this is considered an indication of impairment. In
such an event, the investment is written down to fair value and the
amounts previously recognised in the statement of comprehensive
income in respect of cumulative changes in fair value, are taken to
the income statement as an impairment charge.
Trade receivables, which generally have 30-90 day payment terms,
are initially recognised at fair value, normally equivalent to the
invoice amount and subsequently measured at amortised cost. When
the time value of money is material, the fair value is discounted.
Provision for specific doubtful debts is made when there is
evidence that the Group will not be able to recover balances in
full. Balances are written off when the receivable amount is deemed
irrecoverable.
Cash amounts represent cash in hand and on-demand deposits. Cash
equivalents are short-term highly liquid investments with same day
or next day maturity.
Financial liabilities
Financial liabilities including trade payables are stated at
amortised cost using the effective interest rate method. Amortised
cost is calculated by taking into account any issue costs and any
discount or premium on settlement. A financial liability ceases to
be recognised when the obligation under the liability has been
discharged, cancelled or has expired.
Derivative financial instruments and hedging
The Group may, from time to time, use derivative financial
instruments to hedge Group and Henderson Group investments against
price, interest rate, foreign currency and credit risk. Derivative
financial instruments are classified as financial assets when the
fair value is positive or as financial liabilities when the fair
value is negative.
At the inception of a hedge, the Group formally designates and
documents the hedge relationship to which the Group wishes to apply
hedge accounting and the risk management objective and strategy for
undertaking the hedge. Such hedges are expected to be effective in
achieving offsetting changes in fair value and are assessed on an
ongoing basis to determine that they have been effective throughout
the reporting periods for which they were designated and are
expected to remain effective over the remaining hedge period.
Currency hedges
Forward currency contracts are used to hedge the currency
nominal value of certain Euro and US dollar denominated
available-for-sale financial assets and are classified as fair
value hedges. The change in the fair value of a hedging instrument
is recognised in the income statement. The change in the fair value
of the hedged item, attributable to the risk being hedged, is also
recognised in the income statement, offsetting the fair value
changes arising on the designated hedge instrument.
Fair value estimation
The fair value of financial instruments traded in active markets
(such as publicly traded securities and derivatives) is based on
quoted market prices at the reporting date. The quoted market price
used for financial instruments is the current bid price. The fair
value of financial instruments that are not traded in an active
market is determined using valuation techniques commonly used by
market participants, including the use of comparable recent arm's
length transactions, discounted cash flow analysis and option
pricing models.
Provisions
Provisions which are liabilities of uncertain timing or amount,
are recognised when: the Group has a present obligation, legal or
constructive, as a result of a past event; it is probable that an
outflow of resources embodying economic benefits will be required
to settle the obligation; and a reliable estimate can be made of
the amount of the obligation. In the event that the time value of
money is material, provisions are determined by discounting the
expected future cash flows at a discount rate that reflects a
current market assessment of the time value of money and, where
appropriate, the risks specific to the liability. When discounting,
the increase in the provision due to the passage of time is
recognised as a finance charge.
Foreign currencies
The functional currency of the Company and its UK subsidiaries
is GBP. Transactions in foreign currencies are recorded at the
appropriate exchange rate prevailing at the date of the
transaction. Foreign currency monetary balances at the reporting
date are converted at the prevailing exchange rate. Foreign
currency non-monetary balances carried at fair value or cost are
translated at the rates prevailing at the date when the fair value
or cost is determined. Gains and losses arising on retranslation
are taken to the income statement, except for available-for-sale
financial assets where the unhedged changes in fair value are
recognised in the statement of comprehensive income.
On consolidation, the assets and liabilities of the Group's
overseas operations whose functional currency is not GBP are
translated at exchange rates prevailing at the reporting date.
Income and expense items are translated at average exchange rates
for the accounting period. Exchange differences arising, if any,
are taken through the consolidated statement of comprehensive
income to the translation reserve. Such translation differences are
recognised in the consolidated income statement in the accounting
period in which the operation is disposed of.
Equity shares
The Company's ordinary equity shares of 12.5 pence each are
classified as equity instruments. Equity shares issued by the
Company are recorded at the proceeds or fair value received, with
the excess of the amount received over the nominal value being
recognised in share premium. Direct issue costs, net of tax, are
deducted from equity through share premium. When share capital is
repurchased, the amount of consideration paid, including directly
attributable costs, is recognised as a change in equity.
Dividend recognition
Dividend distributions to the Company's shareholders are
recognised in the accounting period in which the dividends are paid
and, in the case of final dividends, when these are approved by the
Company's shareholders. Dividend distributions are recognised in
equity. Dividend distributions pursuant to the Income Access Share
arrangements are recognised in the equity of the Group in the
period in which the dividends are paid.
2.2 Significant accounting judgements, estimates and
assumptions
In the process of applying the Group's accounting policies,
management has made significant judgements involving estimations
and assumptions which are summarised below:
Impairment of goodwill
As explained on page 23, goodwill is reviewed for impairment
annually or more frequently if changes in circumstances indicate
that the carrying value may be impaired.
The judgement exercised by management in arriving at this
valuation includes the selection of market growth rates, fund flow
assumptions, expected margins and costs. Further details are given
in note 12.
Share-based payment transactions
The Group measures the cost of equity-settled share schemes at
fair value at the date of grant and expenses them over the vesting
period based on the Group's estimate of shares that will eventually
vest.
The liability for cash-settled share schemes represents the
estimated transaction cost up to the settlement date, taking into
account historical experience of good and bad leavers.
Impairment of available-for-sale financial assets
Available-for-sale financial assets are reviewed for impairment
on a semi-annual basis or more frequently as required. In specific
cases, where a quoted market price or fair value is not available,
significant judgement is exercised by management in determining the
extent of impairment, taking into account other available market
data. Management also exercises judgement in determining whether a
decrease in the value of an asset meets the prolonged or
significant tests.
Pension and other post-employment benefits
The costs of and period end obligations under defined benefit
pension schemes are determined using actuarial valuations. The
actuarial valuation involves making assumptions about discount
rates, expected rates of return on assets, future salary increases,
mortality rates and future pension increases. Due to the long-term
nature of these schemes, such estimates are subject to significant
uncertainty. Further details are given in note 20.
Deferred tax assets
Deferred tax assets are recognised for unused tax losses to the
extent that it is probable that taxable profits will be available
against which the losses can be utilised. Significant management
judgement is required to determine the amount of deferred tax
assets that can be recognised, based upon the likely timing and
level of future taxable profits together with future tax planning
strategies.
Provisions
By their nature, provisions often reflect significant levels of
judgement by management. The nature and amount of the provisions
included in the statement of financial position are detailed in
note 21 and contingencies not provided for are disclosed in note
33.
Accrued income
Accrued income is based on latest available information and
involves a degree of estimation. The most significant estimation
relates to the accrual of performance fees as described on page
21.
Consolidation of seed investments
From time to time, the Group provides seed capital on the launch
of its products, such as UCITs, SICAVs, hedge funds and other
investment vehicles. The seed capital investments vary in duration
depending on the nature of the investment, with a typical range of
less than one year for Listed Asset products and between three and
seven years for Private Equity and Property funds, and represent
less than 50% of the underlying fund's equity. Given the limited
size and nature of these investments, the Group does not consider
itself to have significant influence or control over the underlying
funds to merit accounting for them using the equity method or
consolidating them in the Group's financial statements.
2.3 Changes in accounting policies
The accounting policies adopted in this Annual Report and
Accounts are consistent with those of the previous financial year,
except in relation to the following revised and amended standards
set by the International Accounting Standards Board (IASB).
IFRS 3 Business Combinations (revised)
This standard, which the Group adopted in 2010, introduced a
number of changes to accounting for business combinations which
will impact the amount of goodwill recognised on acquisition. The
amendments will also impact the reported results in the period that
an acquisition occurs as well as future results. During 2010, the
Group acquired no new businesses.
IAS 27 Consolidated and Separate Financial Statements
(amendment)
This standard requires that a change in the ownership interest
of a subsidiary (without loss of control) is accounted for as an
equity transaction and such transactions will no longer give rise
to goodwill or gains or losses. Furthermore, on the loss of control
of a subsidiary, the retained interest will be remeasured to fair
value and therefore impact the gain or loss on disposal.
IAS 7 Statement of Cash Flows (effective 1 January 2010), which
clarifies the treatment of expenditure recognised as a cash flow
from investing activities and IAS 38 Intangible Assets (effective 1
July 2009) which discusses intangible assets as a result of a
business combination have been amended due to the revision of IFRS
3. Additionally, IAS 36 Impairment of Assets (effective 1 January
2010) considers the treatment of units of accounting for goodwill.
None of these changes has a material impact on the Group's net
income or equity.
2.4 Future changes in accounting policies
During the course of the year, the IASB and the International
Financial Reporting Interpretations Committee (IFRIC) issued a
number of new accounting standards, amendments to existing
standards and interpretations. The following new standard is not
applicable to these financial statements but is expected to have an
impact when it becomes effective. The Group plans to apply this
standard in the reporting period in which it becomes effective.
IFRS 9 Financial Instruments proposes revised measurement and
classification criteria for financial assets. This standard has a
mandatory effective date in 2013. The Group is still assessing the
impact on the Group's future financial statements.
3. Income
2010 2009
GBPm GBPm
--------------------------------------------------------- --------- --------
Gross fee income and commissions
Gross fee income 355.7 224.0
Amortisation of deferred income 36.9 26.3
--------------------------------------------------------- --------- --------
392.6 250.3
Finance income
Interest on cash and cash equivalents 1.1 0.3
Interest on loans to fellow subsidiaries 3.2 3.8
Net investment income from, and gains and losses
on, available-for-sale financial assets (0.7) (0.1)
Net losses arising on derivatives in a designated
fair value hedge accounting relationship (0.7) 0.3
Net gains arising on adjustment for the hedged item in
a designated fair value hedge accounting relationship 0.7 (0.3)
--------------------------------------------------------- --------- --------
3.6 4.0
--------------------------------------------------------- --------- --------
Gross income 396.2 254.3
--------------------------------------------------------- --------- --------
Commission and fees payable
Commissions and fees payable (64.9) (31.3)
Amortisation of deferred acquisition and commission
costs (37.8) (22.8)
--------------------------------------------------------- --------- --------
(102.7) (54.1)
--------------------------------------------------------- --------- --------
Total income 293.5 200.2
--------------------------------------------------------- --------- --------
4. Expenses
4.1 Operating costs
2010 2009
Note GBPm GBPm
------------------------------------- ------ ------- -------
Employee compensation and benefits 5.2 162.2 119.1
Operating leases 8.3 8.1
Investment administration 22.4 15.6
Information technology 13.5 10.2
Office expenses 8.3 7.1
Foreign exchange (gains)/losses (0.1) 0.2
Other expenses 50.8 22.5
------------------------------------- ------ ------- -------
Total operating costs 265.4 182.8
------------------------------------- ------ ------- -------
Other expenses include marketing, travel and subsistence, and
legal and professional costs. In 2010, other expenses also include
GBP3.0m of costs incurred in relation to the potential acquisition
of RidgeWorth on which the Group terminated discussions in June
2010.
4.2 Auditors' remuneration
2010 2009
GBPm GBPm
------------------------------------------------------------ ------ ------
Fees payable to the Group's auditors for the audit
of the Group's annual consolidated financial statements 0.2 0.2
Fees payable to the Group's auditors and their associates
for other services:
- statutory audit of the Group's subsidiaries 0.4 0.6
- other services pursuant to legislation 0.3 0.3
- other services 0.1 0.1
------------------------------------------------------------ ------ ------
Total fees 1.0 1.2
------------------------------------------------------------ ------ ------
The above analysis reflects the amounts billed by Ernst &
Young LLP in the respective periods. Included in the fees payable
to the Group's auditors for the audit of the Group's 2010
consolidated financial statements are fees of GBP30,000 (2009:
GBP30,000) for the audit of the Company's 2010 financial
statements.
5. Employee benefits
5.1 Average number of employees
The average number of full-time employees of the Group was as
follows:
2010 2009
no. no.
------------------------------ ------ ------
Average number of employees 877 860
------------------------------ ------ ------
5.2 Analysis of employee compensation and benefits expense
Employee compensation and benefits expense comprises:
Notes 2010 2009
GBPm GBPm
--------------------------------------------------- ------ ------ ------
Salaries, wages and bonuses 136.5 93.6
Share-based payments 9.2 14.2 13.9
Social security costs 8.8 7.2
Pension service cost 20 2.7 4.4
--------------------------------------------------- ------ ------ ------
Total employee compensation and benefits expense 162.2 119.1
--------------------------------------------------- ------ ------ ------
Employees' contracts of employment are with certain subsidiary
companies, primarily Henderson Administration Limited; accordingly,
there are no employee benefits disclosures relating to the
Company.
6. Finance costs
2010 2009
GBPm GBPm
----------------------------------- ------ ------
Debt instrument interest expense 8.5 8.8
Revolving credit facility fees 0.2 0.1
----------------------------------- ------ ------
Total finance costs 8.7 8.9
----------------------------------- ------ ------
An interest rate swap was entered into at the time of the debt
issue in May 2007, to swap the fixed coupon of 6.5% per annum into
six month sterling LIBOR plus 85.75bps per annum. The swap was
unwound on 9 December 2008 and the cumulative fair value adjustment
to the debt carrying value, attributable to the hedged interest
rate risk up to the date of unwinding, GBP10.5m, is being amortised
over the remaining term of the debt to maturity on 2 May 2012. In
2010, the impact of the amortisation of the profit on unwinding the
swap is a reduction in finance costs of GBP3.1m (2009:
GBP3.1m).
7. Non-recurring items
The non-recurring items before tax recorded in the consolidated
income statement comprise the following:
2010 2009
GBPm GBPm
---------------------------------------------------- ------- --------
FSCS Levy (5.9) -
Towry Law International provision release 5.8 -
Insurance recoveries - 8.8
New Star integration costs - (17.0)
Infrastructure fund charge - (20.7)
Impairment of available-for-sale financial assets
- property seed capital - (7.3)
---------------------------------------------------- ------- --------
Non-recurring items before tax (0.1) (36.2)
Tax on non-recurring items - 8.6
Non-recurring tax 16.4 -
Non-recurring items after tax 16.3 (27.6)
---------------------------------------------------- ------- --------
2010
FScs Levy
In November 2010, the FSCS indicated that it would raise an
interim levy on investment managers in respect of claims received
primarily from investors in Keydata Investment Services Limited (in
administration). The Group has provided for this levy in full
during 2010.
Towry Law International provision release
During the second half of 2010, the majority of a previously
recognised product mis-selling provision, relating to legacy Towry
Law International products, was deemed no longer required and was
released. This resulted in a GBP5.8m credit in 2010.
Non-recurring tax
During the second half of 2010, HMRC closed enquiries into
certain prior year tax filings, resulting in the Group releasing
tax provisions of GBP16.4m.
2009
Insurance recoveries
During 2009, the Group reached agreement with insurers regarding
a number of insurance claims made by Towry Law International and
the Group in 2003 and 2004 under an AMP Limited run-off insurance
policy, resulting in a net receivable of GBP8.8m.
New Star integration costs
On 9 April 2009, Henderson Group Plc acquired New Star. An
expense of GBP17.0m was incurred by the Group in relation to the
integration of New Star during the period. These integration costs
included costs in respect of fund mergers, rebranding, office
relocation and reorganisation, transition of outsourced retail and
investment operations and staff related expenses.
Infrastructure fund charge
During 2009, the Group recognised an exceptional charge of
GBP20.7m in respect of management fees on one of its infrastructure
funds.
Impairment of available-for-sale financial assets - property
seed capital
In accordance with the impairment tests under IAS 39, three
available-for-sale financial assets invested in property funds were
impaired during 2009. These were written down to their fair values
at 31 December 2009, resulting in a charge to the consolidated
income statement of GBP7.3m.
8. Tax
Tax recognised in the income statement
2010 2009
GBPm GBPm
------------------------------------------------------- ------- --------
Current tax:
- charge/(credit) for the year 14.0 (11.0)
- prior period adjustments (7.2) 2.5
Deferred tax:
- (credit)/charge for the year (3.7) 9.2
- prior period adjustments (1.7) (6.6)
Total tax charged/(credited) to the income statement 1.4 (5.9)
------------------------------------------------------- ------- --------
Tax recognised in the statement of comprehensive
income 2010 2009
GBPm GBPm
-------------------------------------------------------- ------ --------
Deferred tax charge in relation to available-for-sale
financial assets 0.6 0.6
Deferred tax in relation to actuarial gains/(losses) 3.9 (19.4)
-------------------------------------------------------- ------ --------
Total tax charged/(credited) to the statement of
comprehensive income 4.5 (18.8)
-------------------------------------------------------- ------ --------
Reconciliation of profit/(loss) before tax to tax
expense/(credit)
The tax charge/(credit) for the year can be reconciled to the
profit/(loss) before tax in the income statement as follows:
Group
2010 2009
GBPm GBPm
---------------------------------------------------------- -------- --------
Profit/(loss) before tax 15.9 (31.2)
Tax charge/(credit) at the UK corporation tax rate
of 28.0% (2009: 28.0%) 4.5 (8.7)
Factors affecting the tax charge/(credit):
Other disallowable expenditure and non-taxable income 4.7 5.1
Other taxable income 4.0 -
Prior period non-recurring provision release (16.4) -
Prior periods adjustments including those with Henderson
Group entities 7.5 (4.1)
Differences in effective tax rates on overseas earnings (2.8) 2.4
Other items 0.2 (0.6)
Changes in applicable statutory tax rates (0.3) -
Total tax charged/(credited) in the income statement 1.4 (5.9)
---------------------------------------------------------- -------- --------
Differences in effective tax rates on overseas earnings in 2010
includes the benefit of overseas share based compensation plans in
operation.
9. Share-based payments
9.1 Group share-based compensation plans
The following share-based compensation plans were in operation
during 2010:
Restricted Share Plan (RSP)
The RSP is a scheme that allows employees to receive shares in
the Company's ultimate parent (Henderson Group plc) for GBPnil
consideration at a future point, usually after three years. The
awards are made typically for staff recruitment and retention
purposes. Generally, the larger awards have a performance hurdle.
The Henderson Group Remuneration Committee must approve all awards
and the vesting of awards over GBP50,000. On vesting, in order to
obtain the shares, the employee must satisfy any tax and national
insurance obligations.
Employee Share Ownership Plan (ESOP)
The ESOP enables all staff, but not the Executive Directors of
Henderson Group, to voluntarily defer part of their annual bonus
into the ESOP up to a specified limit. The ESOP provides one free
matching share of Henderson Group for every share purchased. To
receive the matching shares, employees must remain in the plan for
three years. The ESOP was offered in 2006, 2007 and 2008.
Forfeiture conditions apply in the case of approved and unapproved
leavers. No plan was offered in 2009 or 2010. Matching shares for
the 2008 plans will vest in June 2011.
Long-Term Incentive Plan (LTIP)
The LTIP is a scheme that allows selected employees to be
granted Henderson Group shares or nil cost options. The options are
granted on condition that the selected employees remain with the
Henderson Group, normally for three years after the grant date, and
the performance conditions for the plans are as follows:
Amount
vesting
Criteria 2007 plan
--------------------------------------------------------- ------------
Henderson Group TSR less than the 50th percentile of
the FTSE 250 companies nil%
Henderson Group TSR at the 50th percentile of the FTSE
250 companies 35%
Henderson Group TSR at or above the 75th percentile
of the FTSE 250 companies 100%
--------------------------------------------------------- ------------
Amount
vesting
2008 to
Criteria 2010 plans
--------------------------------------------------------- -------------
Henderson Group TSR less than the 50th percentile of
the FTSE 350 General Financial Services companies nil%
Henderson Group TSR at the 50th percentile of the FTSE
350 General Financial Services companies 25%
Henderson Group TSR at or above the 75th percentile
of the FTSE 350 General Financial Services companies 100%
--------------------------------------------------------- -------------
For a Henderson Group TSR between the 50th and 75th percentiles,
the amount vesting will increase on a linear basis. In addition,
the Henderson Group Remuneration Committee must be satisfied the
TSR reflects the underlying performance of the Henderson Group.
For the 2010 LTIP, certain employees who are US citizens have
been awarded performance shares in Henderson Group as opposed to
nil cost options but the vesting and forfeiture criteria remain the
same.
The employees are not entitled to vote or receive dividends in
respect of these awards until the vesting conditions are met, nor
are they allowed to pledge, hedge or assign the expected awards in
any way.
In accordance with the scheme terms, the 2007 LTIP met its
vesting conditions on 31 December 2009 and the awards vested in
March 2010. The Henderson Group TSR performance condition resulted
in 100% of the shares of the award being capable of exercise. The
2008 LTIP met its vesting conditions on 31 December 2010 and the
awards vested in February 2011. The Henderson Group TSR performance
condition resulted in 100% of the shares of the award being capable
of exercise.
Deferred Equity Plan (DEP)
Under the Henderson Group's remuneration policy, there is a
requirement for employees who receive short-term incentive awards
over a preset threshold to defer an element of their award. The
majority of deferrals are deferred into the Henderson Group shares,
with some deferrals into Group managed funds when it is deemed
appropriate. The deferred monies are paid to the DEP trustee, who
purchases shares or funds and holds them in trust. In 2007, the
Henderson Group shares attracted one free matching share for every
four shares awarded by the trustee. Since 2008, there has been no
matching share element.
Hedge fund performance fee deferrals are deferred into the hedge
fund that provided the performance fee award and are held in trust
for two years on a fully restricted basis and have no matching
element.
Forfeiture conditions apply in the case of approved and
unapproved leavers. Deferrals into the Henderson Group shares are
held in trust for a minimum of one year. However, for the 2007
scheme the shares must be held in trust for three years in order to
receive the free matching shares.
Deferrals relating to 2009 and 2010 performance awards are
deferred into the Henderson Group shares for up to three years and
vest in three equal tranches, starting in 2011 and 2012
respectively.
Buy As You Earn Share Plan (BAYE)
This is an HMRC approved plan. Eligible employees who wish to
purchase shares in the Henderson Group invest a monthly amount up
to a maximum of GBP125, which is deducted from their gross salary.
Each participating employee receives, for no additional payment,
two free matching shares for each share purchased (partnership
shares). Matching shares will be forfeited if purchased shares are
withdrawn from the trust within one year.
The Henderson Group introduced an international version of the
BAYE during 2010. It operates on a similar basis to the UK version,
except that each participating employee receives one free matching
share for each share purchased.
Company Share Option Plan (CSOP)
The CSOP is a global plan that provides employees with an
opportunity to buy Henderson Group shares after a three year
vesting period at an option price fixed at the start of the scheme.
The CSOP is an HMRC approved share option plan; this means that the
maximum value of unvested options at any time is limited to
GBP30,000 for UK employees. No such restrictions apply for overseas
employees. The share options are held in trust. There are no
Henderson Group performance conditions attached to the options. At
vesting, the employee must choose whether or not to exercise the
options within two years of the vesting date. Executive Directors
of Henderson Group are not eligible to participate in the CSOP. A
2010 CSOP was introduced during the year.
Sharesave scheme (SAYE)
The SAYE is an HMRC approved plan. UK employees may participate
in more than one scheme but only up to a maximum of GBP250 per
month across all schemes. Eligible employees who participate in the
SAYE contribute a monthly amount from their net salary to a savings
account. The SAYE vesting period is three years for UK
employees.
A 2010 SAYE was introduced during the year. At the end of a
three year period, the employees in the 2010 SAYE can choose to
exercise their Henderson Group share options using the funds in
their account, together with a bonus, equivalent to 0.3 (2008 SAYE:
2.4 and 2009 SAYE: 0.6) times the monthly saving amount, to
subscribe for shares at a preset price, this being GBP1.00 (2008
SAYE: GBP0.76 and 2009 SAYE: GBP0.58) per share, a 20% discount to
the average share price on the first five working days of March
2010 (2008 SAYE: 3 March 2008 and 2009 SAYE: 4 March 2009).
Employees have up to six months after the 36 month period to
exercise their options and subscribe for shares. Forfeiture
provisions apply in the case of approved and unapproved leavers.
The 2007 SAYE vested in 2010.
In 2006, the Henderson Group launched the USA Employee Share
Purchase Plan (ESPP). A 2010 ESPP was also introduced during the
year. The ESPP works broadly on the same principles as the UK SAYE
but has a 24 month savings period, a lower discount level at 15%
and no bonus element. The preset option price was USD1.62 (2008
ESPP: USD1.61 and 2009 ESPP: USD0.88). Employees may participate in
more than one plan but only up to a plan maximum of USD312.50 per
month across all plans.
Executive Shared Ownership Plan (ExSOP)
The ExSOP is an employee shared ownership plan and is aimed at
encouraging employee share ownership at middle management
level.
Executive Directors are excluded from participating in the
ExSOP.
Under the terms of the ExSOP, certain employees may be invited
to acquire jointly with an employee benefit trust, the beneficial
interest
in a number of Henderson Group shares under the terms of a joint
ownership agreement (JOA). Under a JOA, the employee will benefit
from any growth in value of the jointly shares from the time of the
award in excess of a hurdle amount fixed by the Board in respect of
each award.
For the 2010 ExSOP, the market price at grant was GBP1.24 per
share. The hurdle price including the 9% carry charge was set at
GBP1.35
per share. The shares have a vesting period of three years. The
employees have a further two years to take their portion of the
jointly
owned shares.
9.2 Share-based payments through the consolidated income
statement
2010 2009
GBPm GBPm
---------------- ------ ------
RSP 3.6 4.5
ESOP 1.3 4.0
LTIP 3.5 2.2
DEP 2.9 1.1
BAYE 1.4 1.0
CSOP 0.8 0.6
SAYE 0.6 0.5
ExSOP 0.1 -
---------------- ------ ------
Total expense 14.2 13.9
---------------- ------ ------
9.2 Share-based payments through the consolidated income
statement (continued)
The total expense can be analysed between:
2010 2009
GBPm GBPm
---------------------------------------------------- ------ ------
Share- based payments 14.2 13.9
Equity-settled performance fee bonuses recognised
within salaries, wages and bonuses 5.8 2.3
Release of prepaid tax (2.1) -
Amount to be settled in cash - (0.3)
---------------------------------------------------- ------ ------
Amounts to be settled with equity of Henderson
Group plc 17.9 15.9
---------------------------------------------------- ------ ------
9.3 Share options outstanding - SAYE
Share options outstanding under the Henderson Group SAYE are as
follows:
2010 2009
Weighted Weighted
average average
exercise exercise
Options price Options price
no. GBP no. GBP
------------------------ ----------- ----------- ------------- -----------
At 1 January 5,380,788 0.636 4,374,413 0.785
Granted 890,160 1.004 4,341,540 0.586
Exercised (refer to
note 25.2) (163,439) 0.980 (839,308) 0.697
Forfeited (536,130) 0.704 (2,495,857) 0.789
------------------------ ----------- ----------- ------------- -----------
At 31 December 5,571,379 0.678 5,380,788 0.636
------------------------ ----------- ----------- ------------- -----------
The weighted average share price on the date options were
exercised during 2010 was GBP1.30 (2009: GBP0.95). There were no
options exercisable at 31 December 2010 (2009: 10,284). The
weighted average fair value of options granted during 2010 was
GBP0.33 (2009: GBP0.22). At 31 December 2010, the expected weighted
average time remaining until the vesting of outstanding awards was
one year three months (2009: two years).
9.4 Share options outstanding - CSOP
Share options outstanding under the Henderson Group CSOP are as
follows:
2010 2009
Weighted Weighted
average average
exercise exercise
Options price Options price
no. GBP no. GBP
---------------- ------------ ----------- ------------ -----------
At 1 January 10,308,222 0.726 355,000 0.960
Granted 4,302,400 1.237 10,889,000 0.726
Exercised (126,691) 0.726 (9,248) 0.726
Forfeited (985,714) 0.816 (926,530) 0.816
---------------- ------------ ----------- ------------ -----------
At 31 December 13,498,217 0.882 10,308,222 0.726
---------------- ------------ ----------- ------------ -----------
There were 40,217 options exercisable at 31 December 2010 (2009:
nil). The weighted average fair value of options granted during
2010 was GBP0.23 (2009: GBP0.19). At 31 December 2010, the expected
weighted average time remaining until the vesting of outstanding
awards was one year six months (2009: two years).
9.5 Jointly owned shares outstanding - ExSOP
Jointly owned shares outstanding under the Group's ExSOP are as
follows:
2010 2009
Weighted Weighted
average Jointly average
Jointly owned exercise owned shares exercise
Shares no. price GBP no. price GBP
------------------------------- ------------- -------------- --------------
At 1 January - - - -
Granted 3,640,800 1.240 - -
Exercised - - - -
Forfeited (43,800) 1.240 - -
-------------- --------------- ------------- -------------- --------------
At 31
December 3,597,000 1.240 - -
-------------- --------------- ------------- -------------- --------------
The ExSOP commenced in 2010. There were no jointly owned
Henderson Group plc shares exercisable at 31 December 2010. The
fair value of the jointly owned shares granted during 2010 was
GBP0.20. At 31 December 2010, the expected weighted average time
remaining until the vesting of outstanding awards was two years six
months.
9.6 Fair values of share-based compensation plans
The fair value amounts for the options and jointly owned shares
granted under the SAYE, CSOP and ExSOP were determined using the
Black Scholes option-pricing method, using the following
assumptions:
2008 2008 2009 2009 2010 2010 2010
SAYE CSOP SAYE CSOP SAYE CSOP ExSOP
------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Dividend
yield 6.0% 6.0% 6.0% 6.0% 5.36% 5.36% 5.36%
Expected
volatility 45.0% 45.0% 45.0% 45.0% 35.8% 35.8% 35.8%
Risk-free
interest
rate 5.0% 5.0% 4.0% 4.0% 3.55% 3.55% 3.55%
Expected 3 years 3 years 3 years 3 years 3 years 3 years 3 years
life
Weighted GBP0.960 GBP0.960 GBP0.726 GBP0.726 GBP1.250 GBP1.240 GBP1.240
average
Exercise GBP0.768 GBP0.960 GBP0.582 GBP0.726 GBP0.997 GBP1.240 GBP1.350
price
------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Expected volatility has been calculated based on the historical
volatility for Henderson Group plc over three years.
Other share schemes involve the grant of shares for GBPnil
consideration. The fair value of these grants is calculated using
the share price at grant date, which is set out in the following
table. No adjustments have been made for dividends.
Average
Shares granted share
during 2010 price
Scheme no. GBP
--------- ---------------- ---------
BAYE 1,737,536 1.281
LTIP 13,375,000 1.267
RSP 1,794,632 1.275
DEP 4,305,306 1.301
--------- ---------------- ---------
The fair value calculation for the LTIP includes a statistical
assessment of the likelihood of the Henderson Group achieving
performance targets set out in the plan.
10. Dividends paid and proposed
2010 2010 2009 2009
pence per
GBPm pence per share GBPm share
------------------------------ ------ ----------------- ------ -----------
Dividends on ordinary shares
declared and
paid in the period
Final dividend in respect of
2H09 (2H08) 34.1 4.25 33.4 4.25
Interim dividend in respect
of 1H10 (1H09) 14.9 1.85 14.5 1.85
------------------------------ ------ ----------------- ------ -----------
Total dividends paid and
charged to equity 49.0 6.10 47.9 6.10
------------------------------ ------ ----------------- ------ -----------
Dividends proposed on
ordinary shares and
approved by the
shareholders at the
Henderson Group plc AGM
------------------------------ ------ ----------------- ------ -----------
Final dividend for 2H10
(2H09) 38.8 4.65 34.1 4.25
------------------------------ ------ ----------------- ------ -----------
The dividend proposed in respect of 2H10 of GBP38.8m is based on
the total number of ordinary shares in issue at 31 December 2010.
As referred to in note 35, an additional GBP11.3m of dividends
became payable as a result of the Gartmore Acquisition.
Pursuant to the Income Access Share arrangements, shareholders
in Henderson Group plc are able to elect to receive their dividends
from a UK source within the Henderson Group. The above table
reflects those dividends declared by the Board of Henderson Group
plc and paid to those shareholders who have elected to receive
their dividends via the Income Access Share arrangements, and
thereby paid by a subsidiary of the Group. Shareholders who do not
elect to receive their dividends via the Income Access Share
arrangements are paid by a company that is not part of the Group.
The total of these payments in 2010 was nil (2009: GBP0.4m).
The Directors of the Company have not declared or paid any
dividends in 2010 (2009: GBPnil).
11. Segmental information
Group operating income and net assets
The Group is an investment manager, operating throughout Europe
and with operations in North America. The Group manages a broad
range of actively managed investment products for institutional and
retail investors, across multiple asset classes, including
equities, fixed income, property and private equity. Management
operates across product lines, distribution channels, and
geographic regions. All investment product types are sold in most,
if not all, of these regions, and are managed in various
locations.
Information is reported to the chief operating decision maker,
the Board of Henderson Group plc, on an aggregated basis. Strategic
and financial management decisions are determined centrally by the
Board of Henderson Group plc and, on this basis, the Group is also
a single segment investment management business.
Entity-wide disclosures
Revenues by product
2010 2009
GBPm GBPm
------------------------------- ------- -------
UK wholesale 167.2 66.6
Property 52.3 30.7
Institutional and Cash funds 55.1 41.7
Horizon wholesale 25.4 38.4
US wholesale 34.3 24.5
Hedge funds 17.7 19.4
Other 40.6 29.0
------------------------------- ------- -------
392.6 250.3
------------------------------- ------- -------
Geographic information
Revenues from clients
2010 2009
GBPm GBPm
------------------------------- ------- -------
UK 348.7 214.3
US 33.0 26.0
Luxembourg 1.1 1.2
Other 9.8 8.8
------------------------------- ------- -------
392.6 250.3
------------------------------- ------- -------
The geographical revenue information is split according to the
country in which the revenue is generated, not necessarily where
the client is based.
The Group does not have a single client which accounts for more
than 10% of revenues.
Non-current assets
2010 2009
GBPm GBPm
-------- ------- -------
UK 290.5 272.9
Other 7.5 9.6
-------- ------- -------
298.0 282.5
-------- ------- -------
Non-current assets for this purpose consist of intangible
assets, investments in associates and joint ventures, plant and
equipment and deferred acquisition and commission costs.
12. Intangible assets
Intangible assets are made up as follows:
2010
Group
Computer
Goodwill software Total
GBPm GBPm GBPm
-------------------------------------- ---------- ----------- -------
Cost
At 1 January 224.3 2.4 226.7
Disposal - (0.9) (0.9)
-------------------------------------- ---------- ----------- -------
At 31 December 224.3 1.5 225.8
-------------------------------------- ---------- ----------- -------
Amortisation and impairment losses
At 1 January - (0.4) (0.4)
Amortisation charge during the year - (0.3) (0.3)
-------------------------------------- ---------- ----------- -------
At 31 December - (0.7) (0.7)
-------------------------------------- ---------- ----------- -------
Carrying value at 31 December 224.3 0.8 225.1
-------------------------------------- ---------- ----------- -------
2009
Group
Computer
Goodwill software Total
GBPm GBPm GBPm
-------------------------------------- ---------- ----------- -------
Cost
At 1 January 224.3 1.9 226.2
Additions - 0.5 0.5
-------------------------------------- ---------- ----------- -------
At 31 December 224.3 2.4 226.7
-------------------------------------- ---------- ----------- -------
Amortisation and impairment losses
At 1 January - (0.1) (0.1)
Amortisation charge during the year - (0.3) (0.3)
-------------------------------------- ---------- ----------- -------
At 31 December - (0.4) (0.4)
-------------------------------------- ---------- ----------- -------
Carrying value at 31 December 224.3 2.0 226.3
-------------------------------------- ---------- ----------- -------
The Group considers itself to be a single segment investment
management business and, therefore, a single cash generating unit
to which goodwill can be allocated.
The recoverable amount of goodwill at 31 December 2010 has been
determined from a value in use calculation, using the budgets and
forecasts approved by the Henderson Group Board and a terminal
value for the period thereafter. The key growth assumptions used in
the budgets and forecasts include assumptions on market movements,
business growth, margins, business investment and inflation. The
terminal value has been calculated assuming a long-term growth rate
of 2% per annum in perpetuity, based on the Group's view of
long-term nominal growth. A discount rate of 11.6% per annum has
been applied.
The resultant value in use calculation has been compared with
the carrying amount of goodwill to determine if any goodwill
impairment arises. The calculation shows significant headroom in
the recoverable amount of goodwill.
The value in use calculation has been flexed for a 25% reduction
in annual fund flows, a 40% drop in markets in 2011 with a recovery
after two years and a corresponding decrease in costs. This
calculation also shows headroom in the recoverable amount of
goodwill. The ability of the Group to manage its cost base during
periods of market weakness has not been factored into this
scenario, but would further increase headroom in the recoverable
amount of goodwill.
Recent transaction experience provides additional evidence that
the recoverable amount of goodwill is in excess of the carrying
amount.
13. Investments in subsidiaries, associates and joint
ventures
13.1 Principal subsidiaries
Group
The principal subsidiaries of the Group, excluding the directly
held subsidiaries of the Company shown below, are as follows:
Country of
incorporation
and principal Percentage Percentage
place of Functional owned owned
operation currency 2010 2009
----------------- ---------------- ------------- ------------ ------------
Henderson
Administration
Limited UK GBP 100% 100%
Henderson
Alternative
Investment
Advisor
Limited UK GBP 100% 100%
Henderson
Equity
Partners
Limited UK GBP 100% 100%
Henderson Fund
Management
Limited UK GBP 100% 100%
Henderson
Global
Investors
(International Netherlands
Holdings) BV and UK EUR 100% 100%
Henderson
Global
Investors
(Jersey) Jersey and
Limited UK GBP 100% 100%
Henderson
Global
Investors
(Holdings)
Limited UK GBP 100% 100%
Henderson
Global
Investors
(Jersey) 2 Jersey and
Limited UK GBP 100% 100%
Henderson
Global
Investors
Limited UK GBP 100% 100%
Henderson
Global
Investors
(North
America) Inc. USA USD 100% 100%
Henderson
Holdings
Limited UK GBP 100% 100%
Henderson
International
Holdings Jersey and
Limited UK GBP 100% 100%
Henderson
International
Inc. USA USD 100% 100%
Henderson
Investment
Funds Limited UK GBP 100% 100%
Henderson
Investment
Management
Limited UK GBP 100% 100%
----------------- ---------------- ------------- ------------ ------------
The information disclosed in the table above is only in respect
of those subsidiaries which principally affect the figures shown in
the Group's financial statements. There are a number of other
subsidiaries whose business does not materially affect the Group's
profits or the amount of its assets. Particulars of these have been
omitted for simplification purposes.
Company
2010 2009 (Restated)
GBPm GBPm
------------------------------------------- --------- -----------------
At 1 January 871.7 874.2
Additional investment in subsidiaries 359.8 48.1
Impairment of investment in subsidiaries (47.7) (50.6)
Disposal of investment in subsidiaries (215.8) -
------------------------------------------- --------- -----------------
At 31 December 968.0 871.7
------------------------------------------- --------- -----------------
The impairment relates to an investment in a subsidiary of the
Company that does not have sufficient distributable reserves or
forecast future cash flow to support the carrying value of the
investment. As a result, the investment has been fully
impaired.
The directly held subsidiaries of the Company are as
follows:
Country of
incorporation
and principal Percentage
place of Functional owned Percentage
operation currency 2010 owned 2009
---------------- ---------------- ------------- ------------ -------------
Henderson
Global
Investors
(Holdings)
Limited UK GBP 100% 100%
HGI
(Investments)
Limited UK GBP 100% 100%
Henderson
Finances UK GBP 0% 100%
Henderson
Portfolio
Managers
Limited UK GBP 0% 100%
UKLS Financial
Planning
Limited UK GBP 0% 100%
HHG (VH)
Limited UK GBP 0% 100%
---------------- ---------------- ------------- ------------ -------------
13.2 Associates and joint ventures
Group
The Group holds interests in the following associates and joint
ventures:
Country of
incorporation
and principal Percentage Percentage
place of Functional owned owned
operation currency 2010 2009
---------------------------- ---------------- ------------- ------------ ------------
Attunga Capital Pty
Limited Australia AUD 30% 30%
Henderson-mfi Shopping
Centre GmbH & Co. KG Germany EUR 50% 50%
Henderson-mfi Shopping
Centre Verwaltungs GmbH Germany EUR 50% 50%
HGI Immobilien GmbH Germany EUR 50% 50%
Warburg-Henderson
Kapitalanlagegesellschaft
fur Immobilien mbH Germany EUR 50% 50%
---------------------------- ---------------- ------------- ------------ ------------
2010 2009
GBPm GBPm
-------------------------------- ------ ------
Share of aggregate net assets 5.1 5.0
-------------------------------- ------ ------
Share of profit for the year 1.3 0.7
-------------------------------- ------ ------
The Group's investments in associates and joint ventures are
accounted for under the equity method. The investments are carried
at cost adjusted for post-acquisition share of profits and losses
and other changes in equity. Distributions received from associates
and joint ventures during the year are deducted from the carrying
value of the investment.
14. Plant and equipment
Group
2010 2009
GBPm GBPm
-------------------------------- -------- --------
Cost
At 1 January 32.9 30.6
Additions 0.8 2.7
Disposals (0.1) (0.4)
Foreign exchange movement 0.4 -
-------------------------------- -------- --------
At 31 December 34.0 32.9
-------------------------------- -------- --------
Depreciation
At 1 January (10.9) (8.1)
Charge during the year (3.1) (3.2)
Disposals - 0.4
At 31 December (14.0) (10.9)
-------------------------------- -------- --------
Net book value at 31 December 20.0 22.0
-------------------------------- -------- --------
Included in cost as at 31 December 2010 were fully depreciated
assets amounting to GBP2.8m (2009: GBP1.3m).
15. Fair value of financial instruments
Total financial assets and liabilities
Group
Carrying value Fair value
2010 2009 2010 2009
Notes GBPm GBPm GBPm GBPm
------------------------------- ------- -------- -------- ------- -------
Financial assets
Current assets:
Financial assets at fair
value through profit or loss
Shares/units in OEICs/unit
trusts 1.2 0.6 1.2 0.6
Other financial assets
Available-for-sale financial
assets 30.7 27.3 30.7 27.3
OEIC and unit trust debtors,
loans to and amounts owed
from fellow subsidiaries and
other debtors 17 302.4 256.0 302.4 256.0
Derivative financial
instruments 17 - 0.2 - 0.2
Cash and cash equivalents 18.1 157.1 84.5 157.1 84.5
------------------------------- ------- -------- -------- ------- -------
Total financial assets 491.4 368.6 491.4 368.6
------------------------------- ------- -------- -------- ------- -------
Financial liabilities
Non-current liabilities:
Debt instrument in issue 19 179.1 181.9 179.2 173.5
Current liabilities:
OEIC and unit trust
creditors, loans from and
amounts owed to fellow
subsidiaries and other
creditors 24 259.9 178.6 259.9 178.6
Derivative financial
instruments 24 0.1 1.0 0.1 1.0
------------------------------- ------- -------- -------- ------- -------
Total financial liabilities 439.1 361.5 439.2 353.1
------------------------------- ------- -------- -------- ------- -------
Company
Carrying value Fair value
2010 2009 2010 2009
Notes GBPm GBPm GBPm GBPm
----------------------------- ------- ------- --------- ------- ---------
Financial assets
Current assets:
Loans to and amounts owed
from fellow subsidiaries
and other assets 17 194.1 376.0 194.1 376.0
Cash and cash equivalents 18.1 10.8 8.9 10.8 8.9
----------------------------- ------- ------- --------- ------- ---------
Total financial assets 204.9 384.9 204.9 384.9
----------------------------- ------- ------- --------- ------- ---------
Financial liabilities
Non-current liabilities:
Debt instrument in issue 19 179.1 181.9 179.2 173.5
Current liabilities:
Loans from subsidiaries 23 500.2 549.0 500.2 549.0
Amounts owed to fellow
subsidiaries 24 271.5 339.2 271.5 339.2
Total financial liabilities 950.8 1,070.1 950.9 1,061.7
----------------------------- ------- ------- --------- ------- ---------
The Group enters into forward foreign exchange contracts to
hedge various financial assets and liabilities denominated in
foreign currency and therefore applies fair value hedge accounting.
In 2008, an interest rate swap held on the debt was unwound and the
cumulative fair value adjustment to the carrying value of the debt
up to the date of unwinding, is being amortised and the charge is
recognised in the consolidated income statement over the remaining
term of the debt, which matures on 2 May 2012 (refer to note
19).
Fair value hierarchy - Group only
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
Level 1: quoted (unadjusted) prices in active markets for
identical assets or liabilities.
Level 2: other techniques for which all inputs, which have
significant effect on the recorded fair value, are observable,
either directly or indirectly.
Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
data.
Level
2010 Level 1 Level 2 3
Notes GBPm GBPm GBPm GBPm
----------------------------- ------- ------- --------- --------- -------
Financial assets
Current assets:
Financial assets at fair
value through profit or
loss
Shares/units in OEICs/unit
trusts 1.2 1.2 - -
Other financial assets
Available-for-sale
financial assets 30.7 3.0 1.1 26.6
Total financial assets 31.9 4.2 1.1 26.6
----------------------------- ------- ------- --------- --------- -------
Financial liabilities
Current liabilities
Derivative financial
instruments 24 0.1 0.1 - -
----------------------------- ------- ------- --------- --------- -------
Total financial liabilities 0.1 0.1 - -
----------------------------- ------- ------- --------- --------- -------
Level
2009 Level 1 Level 2 3
Notes GBPm GBPm GBPm GBPm
----------------------------- ------- ------- --------- --------- -------
Financial assets
Current assets:
Financial assets at fair
value through profit or
loss
Shares/units in OEICs/unit
trusts 0.6 0.6 - -
Other financial assets
Available-for-sale
financial assets 27.3 0.9 - 26.4
Derivative financial
instruments 17 0.2 0.2 - -
----------------------------- ------- ------- --------- --------- -------
Total financial assets 28.1 1.7 - 26.4
----------------------------- ------- ------- --------- --------- -------
Financial liabilities
Current liabilities
Derivative financial
instruments 24 1.0 1.0 - -
----------------------------- ------- ------- --------- --------- -------
Total financial liabilities 1.0 1.0 - -
----------------------------- ------- ------- --------- --------- -------
During 2010, there were no transfers between Level 1 and Level 2
fair value measurements (2009: GBPnil) and no transfers into or out
of Level 3 fair value measurements (2009: GBPnil).
Fair value hierarchy - Group only
The following is a reconciliation of the Group's financial
instruments classified as Level 3 during the year:
2010 2009
GBPm GBPm
------------------------------------------------------------ ------- -------
Fair value at 1 January 26.4 38.1
Additions 0.9 0.2
Disposals (1.1) -
Fair value movements recognised in the consolidated
statement of comprehensive income 2.2 (4.4)
Impairment recognised in the consolidated income statement (1.8) (7.5)
------------------------------------------------------------ ------- -------
Fair value at 31 December 26.6 26.4
------------------------------------------------------------ ------- -------
As the fair value measurement of the financial instruments
included in Level 3, is based on both observable and non-observable
inputs, a change in one or more underlying assumptions to a
reasonably possible alternative would not result in a significant
change in the fair value.
16. Deferred acquisition and commission costs
Group
2010 2009
GBPm GBPm
-------------------------------------- -------- --------
At 1 January 54.0 34.6
Amortisation charge during the year (37.8) (22.8)
Costs and commissions capitalised 74.3 42.6
Foreign exchange movement 0.1 (0.4)
-------------------------------------- -------- --------
At 31 December 90.6 54.0
-------------------------------------- -------- --------
Non-current 47.8 29.1
Current 42.8 24.9
-------------------------------------- -------- --------
At 31 December 90.6 54.0
-------------------------------------- -------- --------
17. Trade and other receivables
Group Company
2010 2009 2010 2009
GBPm GBPm GBPm GBPm
-------------------------------------- ------- ------- ------- -------
Amounts owed by fellow subsidiaries 12.3 17.1 63.5 237.3
Loans to fellow subsidiaries 236.3 183.2 130.6 128.4
OEIC and unit trust debtors 42.1 24.9 - -
Derivative financial instruments - 0.2 - -
Accrued income 58.5 37.8 0.2 0.2
Other debtors 11.7 30.8 - 10.3
Prepayments 7.2 3.6 - -
-------------------------------------- ------- ------- ------- -------
368.1 297.6 194.3 376.2
-------------------------------------- ------- ------- ------- -------
The loans to fellow subsidiaries are either interest free or
attract annual interest at a rate linked to sterling LIBOR and are
repayable on demand.
18. Cash and cash equivalents
18.1 Cash and cash equivalents
Group Company
2010 2009 2010 2009
GBPm GBPm GBPm GBPm
---------------------------- ------- ------ ------ ------
Cash at bank and in hand 51.3 14.7 - -
Cash equivalents 105.8 69.8 10.8 8.9
---------------------------- ------- ------ ------ ------
Cash and cash equivalents 157.1 84.5 10.8 8.9
---------------------------- ------- ------ ------ ------
Cash and cash equivalents consist of cash in hand, cash at bank
and short-term investments with financial institutions with
original maturity periods of three months or less.
Included within cash and cash equivalents of the Group as at 31
December 2010 is GBP4.7m (2009: GBP4.7m) of restricted cash.
Restricted amounts represent GBP4.7m (2009: GBP4.7m) held in escrow
for the Pension Scheme. In addition as at 31 December 2010 GBP17.4m
(2009: GBP1.6m) of cash was held in the Group's manager dealing
accounts which represent payments due to and from OEICs and unit
trusts as a result of client trading.
18.2 Changes in operating assets and liabilities
Group Company
2010 2009 2010 2009
GBPm GBPm GBPm GBPm
-------------------------------------- -------- -------- -------- ------
Change in OEICs and unit trusts
debtors and creditors 4.6 5.3 - -
(Increase) in deferred acquisition
and commission costs (74.3) (42.6) - -
(Increase)/decrease in other assets (54.0) (78.4) 40.2 39.1
Increase in deferred income 75.9 45.5 - -
Increase/(decrease) in provisions
and other liabilities 151.4 80.1 (67.5) 21.0
-------------------------------------- -------- -------- -------- ------
Changes in operating assets and
liabilities 103.6 9.9 (27.3) 60.1
-------------------------------------- -------- -------- -------- ------
19. Debt instrument in issue
Group & Company
2010 2010 2009 2009
Carrying Carrying
value Fair value value Fair value
GBPm GBPm GBPm GBPm
-------------------------- ---------- ------------ ---------- ------------
Debt instrument in issue 179.1 179.2 181.9 173.5
-------------------------- ---------- ------------ ---------- ------------
The debt instrument in issue represents GBP175m senior, unrated,
fixed rate notes listed on the LSE. The debt instrument is
unsecured and repayable in full on 2 May 2012 and bears interest at
a fixed rate of 6.5% per annum payable every six months. The debt
instrument was issued by the Company.
The Group swapped the fixed interest coupon into a floating rate
on issue of the debt. The swap was unwound on 9 December 2008
and the fair value adjustment to the debt carrying value,
attributable to the hedged interest rate risk up to the date of
unwinding the swap, GBP10.5m, is being amortised over the remaining
term of the debt. As at 31 December 2010, GBP4.1m (2009: GBP7.2m)
remains to be amortised.
On 30 January 2009, the Group entered into a revolving credit
facility agreement with a syndicate of banks. The facility limit
was GBP25m and was due to terminate on 31 March 2012. The Group has
not drawn on the facility since entering into the agreement. As
referred to in note 35, subsequent to 31 December 2010 the Group
has cancelled this facility.
On 18 March 2011, Henderson UK Finance plc, a subsidiary of the
Group, incorporated on 9 February 2011 announced an issue of
GBP150,000,000 7.25% p.a. notes due on 24 March 2016 ("the Notes").
The Notes are unconditionally and irrevocably guaranteed within the
Group and by Henderson Group plc. As part of the issue of the debt,
GBP32.4m of loan notes issued by the Company, maturing on 2 May
2012, were exchanged with Henderson UK Finance plc leaving a
notional GBP142.6m of the Company's notes outstanding.
20. Retirement benefits
Retirement benefit assets recognised in the statement of
financial position
Group Company
2010 2009 2010 2009
Note GBPm GBPm GBPm GBPm
--------------------------------- ------ ------- ------ ------- ------
Henderson Group Pension Scheme 20.1 112.5 90.0 112.5 90.0
--------------------------------- ------ ------- ------ ------- ------
Retirement benefit obligations recognised in the statement of
financial position
Group Company
2010 2009 2010 2009
Note GBPm GBPm GBPm GBPm
------------------------------------- ------ ------ ------ ------ ------
Henderson Group unapproved pension
schemes 20.2 6.2 6.1 - -
------------------------------------- ------ ------ ------ ------ ------
Pension service cost/(credit) recognised in the income
statement
Group Company
2010 2009 2010 2009
Notes GBPm GBPm GBPm GBPm
--------------------------------- ------- ------- ------- ------- -------
Henderson Group Pension Scheme 20.1 (2.3) (0.7) (2.3) (0.7)
Money Purchase Scheme 4.7 4.7 - -
Henderson Group unapproved
pension schemes 20.2 0.3 0.4 - -
--------------------------------- ------- ------- ------- ------- -------
Pension service cost/(credit)
recognised in the income
statement 2.7 4.4 (2.3) (0.7)
--------------------------------- ------- ------- ------- ------- -------
Amounts recognised in the statement of comprehensive income
Group Company
2010 2009 2010 2009
Notes GBPm GBPm GBPm GBPm
--------------------------------- ------- ------ -------- ------ --------
Henderson Group Pension Scheme 20.1 14.8 (68.5) 14.8 (68.5)
Henderson Group unapproved
pension schemes 20.2 - (1.2) - -
--------------------------------- ------- ------ -------- ------ --------
Actuarial (losses)/gains
recognised in the statement of
comprehensive income 14.8 (69.7) 14.8 (68.5)
--------------------------------- ------- ------ -------- ------ --------
20.1 Henderson Group Pension Scheme - Final Salary Scheme
Group and Company
The Final Salary Scheme represents the defined benefit section
of the Pension Scheme, which closed to new members on 15 November
1999. The sponsor and principal employer of the Pension Scheme is
the Company and the participating company is Henderson
Administration Limited. The appointed investment manager for the
final salary scheme is Henderson Global Investors Limited. The
Final Salary Scheme is funded by contributions to a separately
administered fund. The actuarial advisers to the Pension Scheme are
Towers Watson.
The 2010 Pension Scheme accounting valuation under IAS 19
Employee Benefits, is based on full membership data as at 31
December 2008 and adjusted for movements in membership data until
31 December 2010. The Pension Scheme assets are stated at their
fair values as at 31 December 2010. The next triennial valuation
will take place during 2012 based on 31 December 2011 membership
data.
Reconciliation of present value of defined benefit
obligations
2010 2009
GBPm GBPm
----------------------- ------- -------
At 1 January 312.8 251.9
Current service cost 3.2 2.7
Interest cost 17.4 16.0
Actuarial losses 11.5 50.0
Benefit payments (8.1) (7.8)
----------------------- ------- -------
At 31 December 336.8 312.8
----------------------- ------- -------
Reconciliation of the fair value of defined benefit scheme
assets
2010 2009
GBPm GBPm
----------------------------------- ------- --------
At 1 January 402.8 404.4
Expected return on scheme assets 22.9 19.4
Actuarial gains/(losses) 26.3 (18.5)
Contributions 5.4 5.3
Benefit payments (8.1) (7.8)
----------------------------------- ------- --------
At 31 December 449.3 402.8
----------------------------------- ------- --------
Reconciliation of defined benefit asset recognised in the
consolidated statement of financial position
2010 2009
GBPm GBPm
----------------------------------------------- --------- ---------
Present value of defined benefit obligations (336.8) (312.8)
Fair value of defined benefit scheme assets 449.3 402.8
----------------------------------------------- --------- ---------
Net retirement benefit asset at 31 December 112.5 90.0
----------------------------------------------- --------- ---------
Pension service credit recognised in the consolidated income
statement
2010 2009
GBPm GBPm
----------------------------------- -------- --------
Current service cost 3.2 2.7
Interest cost 17.4 16.0
Expected return on scheme assets (22.9) (19.4)
(2.3) (0.7)
----------------------------------- -------- --------
Amounts recognised in the consolidated statement
of comprehensive income
2010 2009
GBPm GBPm
------------------------------------------------------- ------ --------
At 1 January 7.6 76.1
Actuarial gains/(losses) recognised in the statement
of consolidated income 14.8 (68.5)
------------------------------------------------------- ------ --------
At 31 December 22.4 7.6
------------------------------------------------------- ------ --------
Movements in net asset recognised in the consolidated statement
of financial position
2010 2009
GBPm GBPm
---------------------------------------------------------- ------- --------
At 1 January 90.0 152.5
Pension service credit recognised in the consolidated
income statement 2.3 0.7
Contributions 5.4 5.3
Actuarial gains/(losses) recognised in the consolidated
statement of comprehensive income 14.8 (68.5)
---------------------------------------------------------- ------- --------
Net asset at 31 December 112.5 90.0
---------------------------------------------------------- ------- --------
Pension Scheme assets
The major categories of assets in the final salary section of
the Pension Scheme were as follows:
Fair value of the defined benefit assets
% as a total of Expected rate of
Market value assets return
2010 2009 2010 2009 2010 2009
GBPm GBPm % % % %
------------------- ------- ------- -------- -------- --------- --------
Final salary
section
Risk reducing
portfolio 236.4 192.9 53 48 4.2 4.4
Return seeking
portfolio 199.1 209.0 44 52 7.2 7.0
Cash portfolio 13.8 0.9 3 - 4.2 4.4
Total 449.3 402.8 100 100 5.5 5.7
------------------- ------- ------- -------- -------- --------- --------
The Pension Scheme does not hold any investments in
employer-related companies.
The expected return on assets assumption is the weighted average
of the expected returns from each of the portfolios as shown above.
The expected rate of return on assets is based on long-term
expectations as at 31 December 2010. The expected rate of return on
bonds and swaps, constituting the risk reducing portfolio, has been
set by reference to current market yields on long-dated government
bonds. The rates of return for the equities, property and cash
asset classes, constituting the return seeking and cash portfolios,
have been based on the Group's expectations of investment returns
over the longer term.
Actual return on defined benefit assets
2010 2009
GBPm GBPm
--------------------------------- ------ ------
Actual return on scheme assets 49.2 0.9
--------------------------------- ------ ------
Principal actuarial assumptions
(a) Financial assumptions
2010 2009
% per annum % per annum
------------------------------------------------ ------------- -------------
Discount rate 5.4 5.6
Expected rate of return on scheme assets 5.5 5.7
Salary increases 2.5 2.5
Pension increases:
- where liability is the Retail Price Index
(RPI) capped at 5% per annum 3.4 3.6
- where liability is the RPI capped at 2.5%
per annum 2.3 2.4
At fixed At fixed
- where liability is fixed rate rate
Inflation 3.6 3.7
------------------------------------------------ ------------- -------------
On 8 July 2010, the UK Government announced its intention that
statutory minimum pension indexation for private sector UK
pension
schemes would, in future, be linked to the Consumer Price Index
(CPI) rather than RPI, and the consultation period ended on 2
March
2011. As a result, the Group has continued to value the
liabilities in the Pension Scheme using RPI rather than CPI and the
results are expected to be released during 2011.
(b) Demographic assumptions
The demographic assumptions used as at 31 December 2010 are
those underlying the last actuarial valuation of the Pension
Scheme
in 2008. Post-retirement mortality assumptions follow 100% of
the SAPS 'S1 Light' tables and improvements from 2002 in line
with
the 'medium cohort' projections with an underpin of 1% per
annum. The table below illustrates the implied life expectancies as
at 31
December 2010 using this mortality assumption:
Male Female
no. of no. of
years years
------------------------------------------------------ ------- -------
Life expectancy for a member who is currently 60 27.9 29.4
Life expectancy at 60 for a member who is currently
45 29.3 30.9
------------------------------------------------------ ------- -------
(c) Historical amounts
2010 2009 2008 2007 2006
GBPm GBPm GBPm GBPm GBPm
----------------------- --------- --------- --------- --------- ---------
Defined benefit
obligations (336.8) (312.8) (251.9) (282.4) (311.8)
Defined benefit
scheme assets 449.3 402.8 404.4 344.7 306.8
----------------------- --------- --------- --------- --------- ---------
Surplus/(deficit) in
the Pension Scheme 112.5 90.0 152.5 62.3 (5.0)
----------------------- --------- --------- --------- --------- ---------
Experience
(losses)/gains on
scheme liabilities (0.9) 12.1 (1.2) (0.5) 8.5
Experience
gains/(losses) on
scheme assets 26.3 (18.5) 20.6 1.2 (3.7)
----------------------- --------- --------- --------- --------- ---------
Net experience
gains/(losses) 25.4 (6.4) 19.4 0.7 4.8
----------------------- --------- --------- --------- --------- ---------
20.2 Henderson Group unapproved pension schemes
Group
The Group operates three unapproved pension schemes, the details
of which are provided below:
The Pearl Executive Scheme. Members of this scheme are also
members of the Pension Scheme. However, pensionable earnings under
the Pension Scheme are limited to 1/60th for each year of service
and the earnings cap. The Pearl Executive Scheme provides benefits
at 1/30th for each year of service with a maximum of two thirds of
salary after 20 years' service based on pensionable earnings above
the earnings cap, on an unfunded basis.
The Henderson Top Up Scheme. Members of this scheme are also
members of the Pension Scheme. However, pensionable earnings under
the Pension Scheme are limited to the earnings cap, and the
Henderson Top Up Scheme enables benefits to be based on pensionable
earnings without restriction of the earnings cap. These additional
uncapped benefits are generally provided for on an unfunded
basis.
There is also an unfunded liability in respect of one member, to
whom the Group has made a contractual promise to pay a fixed
pension from age 60.
Reconciliation of present value of defined benefit
obligations
2010 2009
GBPm GBPm
--------------------------- ------- -------
At 1 January 6.1 4.7
Current service cost - 0.1
Interest cost 0.3 0.3
Actuarial losses/(gains) - 1.2
Benefit payments (0.2) (0.2)
--------------------------- ------- -------
At 31 December 6.2 6.1
--------------------------- ------- -------
Summary of the defined benefit obligations at 31 December
2010 2009
GBPm GBPm
--------------------------------- ------ ------
Pearl Executive Scheme 5.1 5.0
Henderson Top Up Scheme 0.9 0.9
Individual contractual promise 0.2 0.2
--------------------------------- ------ ------
Total 6.2 6.1
--------------------------------- ------ ------
Reconciliation of defined benefit liability recognised in the
consolidated statement of financial position
2010 2009
GBPm GBPm
----------------------------------------------- ------ ------
Present value of defined benefit obligations 6.2 6.1
Fair value of defined benefit scheme assets - -
----------------------------------------------- ------ ------
Net benefit liability at 31 December 6.2 6.1
----------------------------------------------- ------ ------
Pension service cost recognised in the consolidated income
statement
2010 2009
GBPm GBPm
----------------------- ------ ------
Current service cost - 0.1
Interest cost 0.3 0.3
----------------------- ------ ------
0.3 0.4
----------------------- ------ ------
Amounts recognised in the consolidated statement of
comprehensive income
2010 2009
GBPm GBPm
------------------------------------------------------------ ------ -------
At 1 January 1.8 3.0
Actuarial losses recognised in the consolidated statement
of comprehensive income - (1.2)
------------------------------------------------------------ ------ -------
At 31 December 1.8 1.8
------------------------------------------------------------ ------ -------
Movements in net liability recognised in the consolidated
statement of financial position
2010 2009
GBPm GBPm
------------------------------------------------------------ ------- -------
At 1 January 6.1 4.7
Pension service cost recognised in the consolidated
income statement 0.3 0.4
Actuarial losses recognised in the consolidated statement
of comprehensive income - 1.2
Benefit payments (0.2) (0.2)
------------------------------------------------------------ ------- -------
At 31 December 6.2 6.1
------------------------------------------------------------ ------- -------
Principal actuarial assumptions
(a) Financial assumptions
2010 2009
% per annum % per annum
------------------------------- ------------- -------------
Discount rate 5.4 5.6
Salary increases n/a n/a
Pension increases:
- where liability is the RPI 3.4 3.6
At fixed At fixed
- where liability is fixed rate rate
Inflation 3.6 3.7
------------------------------- ------------- -------------
(b) Demographic assumptions
The demographic assumptions used as at 31 December 2010 are
those underlying the last actuarial valuation of the Pension
Scheme
in 2008. Post-retirement mortality assumptions follow 100% of
the SAPS 'S1 Light' tables and improvements from 2002 in line
with
the 'medium cohort' projections with an underpin of 1% per
annum. The table below illustrates the implied life expectancies as
at 31
December 2010 using this mortality assumption:
Male Female
no. of no. of
years years
------------------------------------------------------ ------- --------
Life expectancy for a member who is currently 60 27.9 29.3
Life expectancy at 60 for a member who is currently
45 29.3 30.9
------------------------------------------------------ ------- --------
(c) Historical amounts
2010 2009 2008 2007 2006
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------ ------ ------- ------ -------
Defined benefit obligations 6.2 6.1 4.7 5.2 5.5
Defined benefit scheme assets - - - - (0.1)
--------------------------------- ------ ------ ------- ------ -------
Deficit in the pension schemes 6.2 6.1 4.7 5.2 5.4
--------------------------------- ------ ------ ------- ------ -------
Experience (losses)/gains
on scheme liabilities - - (0.1) 0.2 0.5
--------------------------------- ------ ------ ------- ------ -------
Employer contributions
The Group does not expect to contribute to the unapproved
pension arrangements in the year ending 31 December 2011.
21. Provisions
Group
FSCS
Staff interim Product
related levy mis-selling Other Total
GBPm GBPm GBPm GBPm GBPm
-------------- ------------- ------------- -------------- ------- -------
At 1 January
2010 2.7 - 6.3 25.0 34.0
Additions - 5.9 - 0.3 6.2
Provisions
utilised (0.2) - (0.2) (0.5) (0.9)
Provisions
released - - (5.8) (0.1) (5.9)
Foreign
exchange
movements 0.1 - - 0.1 0.2
-------------- ------------- ------------- -------------- ------- -------
At 31
December
2010 2.6 5.9 0.3 24.8 33.6
-------------- ------------- ------------- -------------- ------- -------
Non-current - - - 11.0 11.0
Current 2.6 5.9 0.3 13.8 22.6
-------------- ------------- ------------- -------------- ------- -------
At 31
December
2010 2.6 5.9 0.3 24.8 33.6
-------------- ------------- ------------- -------------- ------- -------
Company
Product
mis-selling
GBPm
---------------------- --------------
At 1 January 2010 6.3
Additions -
Provisions utilised (0.2)
Provisions released (5.8)
At 31 December 2010 0.3
Non-current -
Current 0.3
At 31 December 2010 0.3
----------------------
Staff related
Staff-related provisions have been recognised in respect of a
2009 business restructure.
FSCS interim levy
The FSCS interim levy provision reflects the non-recurring
charges raised in 2010 (refer to note 7).
Product mis-selling
Product mis-selling provisions relate to alleged inappropriate
advice given to certain investors by Towry Law International prior
to the Group's ownership.
Other
Other provisions relate to issues which have arisen as a result
of litigation and obligations during the course of the Group's
business activities.
All provisions reflect the Group's current estimates of amounts
and timings.
22. Deferred taxation
Deferred tax assets and liabilities recognised by the Group and
movements therein are as follows:
Group
Accelerated Other
Deferred tax capital Retirement temporary
assets/(liabilities) allowances benefits differences Total
GBPm GBPm GBPm GBPm
At 1 January 2009 0.1 (38.7) (0.7) (39.3)
Current year
credit/(charge) to
the consolidated
income statement 1.4 (4.1) 0.1 (2.6)
Current year
credit/(charge) to
the consolidated
statement of
comprehensive
income - 19.4 (0.6) 18.8
At 31 December 2009 1.5 (23.4) (1.2) (23.1)
Current year
credit/(charge) to
the consolidated
income statement 0.8 (1.6) 6.2 5.4
Impact of foreign
exchange movement - - 0.6 0.6
Current year
(charge)/credit to
the consolidated
statement of
comprehensive
income - (3.9) (0.6) (4.5)
Current year credit
to the consolidated
statement of changes
in equity - - 18.0 18.0
At 31 December 2010 2.3 (28.9) 23.0 (3.6)
Certain deferred tax assets and liabilities in the above summary
have been offset as follows:
Assets Liabilities Total
GBPm GBPm GBPm
At 31 December 2009 7.0 (30.1) (23.1)
At 31 December 2010 29.5 (33.1) (3.6)
-------- --------
During 2010, GBP18.0m was recognised in equity in relation to
deferred tax. This represents the tax effect of the amount by which
the expected tax deduction exceeds the cumulative remuneration
expense for share-based payments.
The change in the UK corporation tax rate from 28% to 27%
resulted in a reduction of GBP0.8m in the net deferred tax
liability. The Government has subsequently announced its intention
to reduce the UK corporation tax rate by an additional 1% in 2011
and 1% per annum thereafter to 23% effective from 1 April 2014.
Recognised deferred tax assets and liabilities at each balance
sheet date during this period will reflect the change in UK
corporation tax rate enacted or substantially enacted at that
reporting date.
At 31 December 2010, the Group had unused tax losses in respect
of which no deferred tax has been recognised as utilisation of the
losses is dependent on future profits. The unrecognised deferred
tax asset in respect of trading losses carried forward is GBP25.4m
(2009: GBP23.8m). The unrecognised deferred tax asset in respect of
capital losses carried forward is GBP15.9m (2009: GBP16.1m). The
trading and capital losses have no expiry date.
Consistent with prior years, deferred tax is not recognised in
respect of taxable temporary differences associated with the
Group's investments in overseas subsidiaries, branches, associates
and joint ventures where the Group controls the timing of the
reversal of the temporary differences and where the reversal of the
temporary differences is not anticipated in the foreseeable
future.
Company
Retirement
Deferred tax liabilities benefits
GBPm
At 1 January 2009 25.2
Current year (credit) to the statement of comprehensive income (19.2)
At 31 December 2009 6.0
Current year charge to the statement of comprehensive income 3.8
At 31 December 2010 9.8
23. Borrowings
Company
2010 2009
GBPm GBPm
------- -------
Loans from subsidiaries 500.2 549.0
-------
The loans from subsidiaries are either interest free or attract
annual interest at a rate linked to LIBOR and are repayable on
demand.
24. Trade and other payables
Group Company
2010 2009 2010 2009
GBPm GBPm GBPm GBPm
OEIC and unit trust creditors 52.7 30.8 - -
Derivative financial instruments 0.1 1.0 - -
Other creditors 7.3 9.3 - -
Accruals 144.1 105.7 2.0 3.5
Amounts owed to fellow subsidiaries 163.7 111.7 271.5 339.2
Loans from fellow subsidiaries 36.2 26.8 - -
404.1 285.3 273.5 342.7
25. Share capital
25.1 Share capital authorised
Group and Company
2010 2009
GBPm GBPm
---------- ---------
1 A ordinary share of 12.5 pence - -
1,949,910,776 ordinary shares of 12.5 pence each 243.7 243.7
---------- ---------
25.2 Allotted share capital
Allotted, called up and fully paid shares:
Group and Company
no. GBPm
------------- ------
A Ordinary shares
Shares in issue at 31 December 2009 and 31 December
2010 1 -
Ordinary shares
Shares in issue at 31 December 2009 and 31 December
2010 725,192,969 90.6
------------- ------
All of the ordinary shares in issue carry the same right to
receive dividends and other distributions declared, made or paid by
the Company.
The Directors consider shareholders' equity to represent Group
capital. The Directors manage the Group's capital structure on an
ongoing basis. Changes to the Group's capital structure can be
affected by adjusting the dividend policy, returning capital to
shareholders or issuing new shares and other forms of capital.
26. Reserves
Group and Company
Nature and purpose of reserves
The consolidated statement of changes in equity and Company
statement of changes in equity on pages 15 and 19 respectively,
provide details of movements in equity for the Group and
Company.
Share premium
Share premium records the difference between the nominal value
of shares issued and the full value of the consideration received
or the market price on the day of issue.
Translation reserve
The translation reserve comprises differences on exchange
arising from the translation of statements of financial position of
subsidiaries, whose reporting currency is not GBP, and differences
between the results of these subsidiaries translated at average
rates for the reporting period and period end rates.
The translation reserve also includes unrealised foreign
exchange gains and losses on available-for-sale financial assets
which are not part of a designated hedge relationship. Upon
disposal or impairment of these assets, amounts previously
recognised in the translation reserve are reversed out and the
cumulative amount of the gain or loss is recognised in the
consolidated income statement.
Revaluation reserve
The revaluation reserve comprises the amount of any unrealised
gain or loss recognised in the consolidated statement of
comprehensive income in relation to available-for-sale financial
assets. Upon disposal or impairment of these assets, amounts
previously recognised in the revaluation reserve are reversed out
and the cumulative amount of the gain or loss is recognised in the
consolidated income statement.
27. Non-controlling interests
The Group has consolidated the following company which has
minority interests:
2010 2009 2010 2009
non-controlling non-controlling non-controlling non-controlling
interest interest interest interest
% % GBPm GBPm
HGI
Immobilien
Austria
GmbH 35% 35% 0.4 0.4
At 31
December 0.4 0.4
28. Financial risk management
Financial risk management objectives and policies
Financial assets principally comprise investments in equity
securities, short-term investments, trade and other receivables,
and cash
and cash equivalents. Financial liabilities comprise borrowings
for financing purposes, certain provisions and trade and other
payables.
The main risks arising from financial instruments are price
risk, interest rate risk, liquidity risk, foreign currency risk and
credit risk.
Each of these risks is discussed in detail below. The Group
monitors financial risks on a consolidated basis and intra-Group
balances
are settled when it is deemed appropriate for both parties to
the transaction. The Company is not exposed to material financial
risk and
separate disclosures for the Company have not been included.
The Company is not exposed to material financial risk as all
material financial assets and liabilities on its balance sheet,
with the exception of the debt instrument in issue, relate to
transactions with its subsidiaries or with fellow subsidiaries of
its ultimate parent. The Company believes that balances arising
from these transactions carry no material risk. With regards to the
debt instrument in issue, the liquidity and interest rate risks are
shown within the Group disclosures below. As a result separate
disclosures for the Company have been excluded.
The Group has designed a framework to manage the risks of its
business and to ensure that the Directors have in place risk
management practices appropriate for the listed Company. The
management of risk within the Group is governed by the Board of
Henderson Group plc and overseen by the Henderson Group Risk
Committee.
28.1 Price risk
Price risk is the risk that a decline in the value of assets
adversely impacts on the profitability of the Group. The Group is
exposed to price risk in respect of seed capital investments in
Henderson funds (available-for-sale financial assets). Seed capital
investments vary in duration, depending on the nature of the
investment, with a typical range of less than one year for open
ended products and between three and seven years for Private Equity
and Property funds. The total market value of seed capital
investments at 31 December 2010 was GBP30.7m (2009: GBP27.3m).
Management monitors exposures to price risk on an ongoing basis.
Significant movements in investment values are monitored on a daily
basis. Where appropriate, management will hedge price risk. At 31
December 2010, investments with a carrying value of GBP2.9m (2009:
GBPnil) were hedged against price risk through the use of contracts
for difference (CFDs).
A fall in the value of an investment which is prolonged or
significant is considered to be objective evidence of impairment
under IAS 39.
In such an event, an investment is written down to its fair
value and cumulative amounts previously recognised in equity, in
respect of
market value and unhedged foreign exchange movements on the
investment, are recognised in the consolidated income statement as
an impairment charge.
Price risk sensitivity analysis on available-for-sale financial
assets
2010 2009
Consolidated Consolidated
income income
statement Equity statement Equity
Price risk sensitivities GBPm GBPm GBPm GBPm
-------------------------- -------------- -------- --------
Market value movement
+/- 10% - 2.8 - 2.7
28.2 Interest rate risk
Interest rate risk is the risk that the Group will sustain
losses from adverse movements in interest rates, either through a
mismatch of
interest-bearing assets and liabilities, or through the effect
such movements have on the value of interest-bearing assets. The
Group is
exposed to interest rates on banking deposits held in the
ordinary course of business. Available-for-sale financial assets
are not currently exposed to interest rate risk. This exposure is
monitored by management on a continuing basis.
Financial assets and liabilities exposed to interest rate
risk
At 31 December 2010
Not directly exposed
to interest rate risk
Floating
rate Fixed Rate Other Total
GBPm GBPm GBPm GBPm
Financial assets
Shares/units in OEICs/unit
trusts - - 1.2 1.2
Available-for-sale
financial assets - - 30.7 30.7
OEIC, unit trust and other
debtors - - 302.4 302.4
Cash and cash equivalents 157.1 - - 157.1
-------
Total financial assets 157.1 - 334.3 491.4
Financial liabilities
Debt instrument in issue - 179.1 - 179.1
OEIC, unit trust and other
creditors - - 259.9 259.9
Derivative financial
instruments - - 0.1 0.1
-------
Total financial liabilities - 179.1 260.0 439.3
At 31 December 2009
Not directly exposed
to interest rate risk
Floating
rate Fixed Rate Other Total
GBPm GBPm GBPm GBPm
Financial assets
Shares/units in OEICs/unit
trusts - - 0.6 0.6
Available-for-sale
financial assets - - 27.3 27.3
OEIC, unit trust and other
debtors - - 256.0 256.0
Derivative financial
instruments - - 0.2 0.2
Cash and cash equivalents 84.5 - - 84.5
-------
Total financial assets 84.5 - 284.1 368.6
Financial liabilities
Debt instrument in issue - 181.9 - 181.9
OEIC, unit trust and other
creditors - - 259.9 259.9
Derivative financial
instruments - - 1.0 1.0
-------
Total financial liabilities - 181.9 260.9 442.8
Interest on financial instruments classified as floating rate is
repriced at intervals of less than one year. Interest on financial
instruments classified as fixed rate is fixed until the maturity of
the instrument.
Interest rate risk sensitivity analysis
Interest rate risk sensitivity analysis on the consolidated
income statement has been performed on the basis of a 50bps fall in
interest rates at the beginning of the year. The impact of such a
decrease would reduce anticipated earnings by circa GBP0.8m per
annum.
28.3 Liquidity risk
Liquidity risk is the risk that the Group may be unable to meet
its payment obligations as they fall due.
Group liquidity is managed on a daily basis by the finance
function, to ensure that the Group always has sufficient cash
and/or highly liquid assets available to meet its liabilities. This
function also controls and monitors the use of the Group's
non-operating capital resources. It is the Group's policy to ensure
that it has access to funds to cover all forecast commitments for
the next 12 months.
The maturity dates of the Group's financial liabilities are as
follows:
At 31 December 2010
Within Carrying
1 year value in
or repayable Within the balance
on demand 2-5 years Total sheet
GBPm GBPm GBPm GBPm
Debt instrument in
issue (including
interest) 11.4 180.6 192.0 179.1
OEIC, unit trust and
other creditors 259.9 - 259.9 259.9
Derivative financial
instruments 0.1 - 0.1 0.1
---------------------- --------------- ------------ --------------
271.4 180.6 452.0 439.1
At 31 December 2009
Within Carrying
1 year value in
or repayable Within the balance
on demand 2-5 years Total sheet
GBPm GBPm GBPm GBPm
Debt instrument in
issue (including
interest) 11.4 192.0 203.4 181.9
OEIC, unit trust and
other creditors 178.6 - 178.6 178.6
Derivative financial
instruments 1.0 - 1.0 1.0
---------------------- --------------- ------------ --------------
191.0 192.0 383.0 361.5
28.4 Foreign currency risk
Foreign currency risk is the risk that the Group will sustain
losses through adverse movements in currency exchange rates.
The Group is exposed to foreign currency risk through its
exposure to non-GBP income and expenses, assets and liabilities of
its overseas subsidiaries as well as net assets and liabilities
denominated in a currency other than GBP. The currency exposure is
managed by closely monitoring foreign currency positions. The Group
also uses foreign currency contracts to reduce or eliminate the
currency exposure on certain individual transactions. The Group
also seeks to use natural hedges to reduce exposure. Where there is
a mismatch on material currency flows, which are reasonably
certain, they are actively hedged. Where there is insufficient
certainty, the currency is translated back into GBP on receipt. In
addition, the Group carries a small foreign exchange position as
principal to facilitate the smooth conduct of its client
business.
Foreign currency risk management is overseen by the Hedge
Committee and hedge effectiveness is reported to the Henderson
Group plc Board monthly. A rolling programme of forward currency
contracts has been implemented to hedge the currency exposures
arising from certain available-for-sale financial assets, with a
year end notional value of USD23.2m and EUR7.8m (2009: USD25.2m and
EUR12.5m) (refer to note 28.6).
Foreign currency risk sensitivity analysis
Available-for-sale financial assets are either denominated in
GBP or hedged back to GBP using foreign currency forward contracts
based on the Group's hedging policy. However, there remain some
available-for-sale financial assets which are not fully hedged as
they fall below the policy level for implementing hedging
arrangements. In addition, there are unhedged foreign currency cash
balances in overseas subsidiaries of the Group.
The table below illustrates the impact of adjusting year end
exchange rates on all unhedged financial assets and cash balances
denominated in a currency other than GBP:
Currency sensitivities
2010 2009
Consolidated
income Consolidated
statement Equity income statement Equity
GBPm GBPm GBPm GBPm
--------------
Euro exchange rate
+/- 10% 0.3 - 0.1 -
US dollar exchange
+/- 10% 0.3 - - 0.1
--------------
28.5 Credit risk
Credit risk is the risk of a counterparty of the Group
defaulting on funds deposited with it or the non-receipt of a trade
debt.
The Group has an established credit policy, to ensure that it
only transacts with counterparties that are able to meet
satisfactory rating requirements. Counterparty limits are reviewed
and set centrally by the Credit Risk Committee. Management is
responsible for ensuring that it remains within these limits and
the risk management function monitors and reports any exceptions to
policy. The Group has not suffered any losses as a result of trade
debtor defaults during the year.
The risk management function is also responsible for reporting
credit exposures to the Henderson Group plc audit committee on a
quarterly basis and for ensuring that any credit concerns are
raised and actions taken to mitigate risks.
The table below contains an analysis of current and overdue
financial assets:
At 31 December 2010
Greater
0-3 3-6 6-12 than 12
Not months months months months
past past past past past
due due due due due Total
GBPm GBPm GBPm GBPm GBPm GBPm
------- -------- -------- -------- --------- -------
Financial assets
Shares/units in
OEICs/unit trusts 1.2 - - - - 1.2
Available-for-sale
financial assets 30.7 - - - - 30.7
OEIC, unit trust
and other debtors 297.0 3.5 0.4 0.3 1.2 302.4
Cash and cash
equivalents 157.1 - - - - 157.1
------- -------- -------- -------- --------- -------
Total financial
assets 486.0 3.5 0.4 0.3 1.2 491.4
------- -------- -------- -------- --------- -------
At 31 December 2009
Greater
0-3 3-6 6-12 than 12
Not months months months months
past past past past past
due due due due due Total
GBPm GBPm GBPm GBPm GBPm GBPm
------- -------- -------- -------- --------- -------
Financial assets
Shares/units in
OEICs/unit trusts 0.6 - - - - 0.6
Available-for-sale
financial assets 27.3 - - - - 27.3
OEIC, unit trust
and other debtors 252.9 2.6 0.2 0.1 0.2 256.0
Derivative
financial
instruments 0.2 - - - - 0.2
Cash and cash
equivalents 84.5 - - - - 84.5
------- -------- -------- -------- --------- -------
Total financial
assets 365.5 2.6 0.2 0.1 0.2 368.6
------- -------- -------- -------- --------- -------
The table below contains an analysis of financial assets as
rated by Moody's Investors Service:
At 31 December 2010
AAA AA A BBB Not rated Total
GBPm GBPm GBPm GBPm GBPm GBPm
------ ------ ----------- -------
Financial assets
Shares/units in
OEICs/unit trusts - - - - 1.2 1.2
Available-for-sale
financial assets - - - - 30.7 30.7
OEIC, unit trust and
other debtors - - - - 294.9 294.9
Cash and cash
equivalents 104.3 46.2 6.6 - - 157.1
------ ------ ----------- -------
Total financial
assets 104.3 46.2 6.6 - 326.8 483.9
------ ------ ----------- -------
At 31 December 2009
AAA AA A BBB Not rated Total
GBPm GBPm GBPm GBPm GBPm GBPm
------ ------ ----------- -------
Financial assets
Shares/units in
OEICs/unit trusts - - - - 0.6 0.6
Available-for-sale
financial assets - - - - 27.3 27.3
OEIC, unit trust and
other debtors - - - - 256.0 256.0
Derivative financial
instruments - 0.2 - - - 0.2
Cash and cash
equivalents 69.9 7.0 7.6 - - 84.5
------ ------ ----------- -------
Total financial assets 69.9 7.2 7.6 - 283.9 368.6
------ ------ ----------- -------
28.6 Hedging activities
At 31 December 2010, the Group held CFDs to hedge the price risk
arising from certain available-for-sale financial assets. These
have
been assessed as effective fair value hedges. The net realised
and unrealised loss arising on these and other instruments entered
into
throughout the year amounted to GBP0.4m (2009: GBPnil) and has
been offset in the consolidated income statement by GBP0.5m (2009:
GBPnil),
being the net realised and unrealised gain on available-for-sale
financial assets in designated hedging relationships during the
year.
At 31 December 2010, the fair value and notional amount of the
CFDs was GBPnil (2009: GBPnil).
At 31 December 2010, the Group held two forward exchange
contracts to hedge the foreign currency risk arising from
available-for-sale financial assets denominated in Euro and US
dollars (refer to note 28.4).
These forward exchange contracts have been assessed as effective
fair value hedges. The net realised and unrealised loss arising
on these and other instruments entered into throughout the year
amounted to GBP0.3m (2009: loss GBP0.3m) and has been offset in
the
consolidated income statement by GBP0.2m (2009: GBP0.3m), being
the net realised and unrealised foreign exchange gain on
available-for-sale financial assets in designated hedging
relationships during the year.
2010 2009
Notional Notional
amount Assets Liabilities amount Assets Liabilities
GBPm GBPm GBPm GBPm GBPm GBPm
Fair value
hedges
Forward
exchange
contracts
at fair
value 21.5 - 0.1 39.9 (0.2) 1.0
29. Leases
Operating lease
The Group was party to one material operating lease. A 20.5 year
operating lease was entered into during 2008 on 201 Bishopsgate
London which provides for reviews to open market rent on every
fifth anniversary of the lease and an initial rent-free period of
30 months. The rental expense on this lease will be recognised on a
straight-line basis over the lease period.
The future minimum lease payments under non-cancellable
operating leases fall due as follows:
2010 2009
GBPm GBPm
----------------------------------------- ------- ------
Within one year 6.5 2.9
In the second to fifth years inclusive 26.0 22.8
After five years 78.2 74.2
----------------------------------------- ------- ------
Total 110.7 99.9
------- ------
30. Capital commitments
The amounts of capital expenditure contracted for but not
provided for in the financial statements at 31 December 2010
amounted to GBPnil (2009: GBPnil).
31. Related party transactions
Disclosures relating to the Henderson Group Pension Scheme are
covered under note 20.
Group
Intra group related party transactions and outstanding balances
are eliminated in the preparation of the consolidated financial
statements of the Group.
Details of transactions between the Group and its fellow
subsidiaries, which are related parties, together with amounts due
from and to these related parties at the balance sheet date, are
disclosed below:
2010 2009
GBPm GBPm
----------------------------------------------- --------- ---------
Transactions with related parties
Interest payable to fellow subsidiaries (0.1) -
Interest receivable from fellow subsidiaries 3.2 3.7
Income from fellow subsidiaries 72.1 56.6
Expenses from fellow subsidiaries (88.8) (63.1)
Share of associates profit for the year 1.4 0.7
Amounts owed by/(to) related parties
Amounts owed by fellow subsidiaries 248.6 200.3
Amounts owed to fellow subsidiaries (199.9) (138.5)
----------------------------------------------- --------- ---------
Compensation of key management personnel (including
Directors)
The aggregate annual remuneration of the Directors and the five
highest paid non-Director executives is disclosed below:
2010 2009
GBPm GBPm
------------------------------- ------ ------
Short-term employee benefits 7.8 5.2
Post-employment benefits 0.2 0.2
Share-based payments 4.3 4.1
------------------------------- ------ ------
12.3 9.5
------------------------------- ------ ------
Company
Details of transactions between the Company and its controlled
entities, which are related parties, together with amounts due from
and to these related parties at the balance sheet date, are
disclosed below:
2010 2009
GBPm GBPm
--------------------------------------------------- --------- ---------
Transactions with related parties
Additional investment in subsidiary companies 359.8 48.1
Impairment of investment in subsidiary companies (47.7) (50.6)
Disposal of investment in subsidiary companies (215.8) -
Dividends receivable from a subsidiary company 50.0 -
Expenses recovered from subsidiary companies (19.4) 4.0
Interest payable to subsidiary companies (3.0) (9.8)
Interest receivable from subsidiary companies 4.6 1.4
Settlement of balances with fellow subsidiaries (87.2) -
Amounts owed by/(to) related parties
Amounts owed by fellow subsidiaries 194.2 365.7
Amounts owed to fellow subsidiaries (771.7) (888.2)
--------------------------------------------------- --------- ---------
32. Ultimate Parent Undertaking and Controlling Party
The Company's immediate parent undertaking is Henderson Holdings
Group Limited and the ultimate parent undertaking is Henderson
Group plc. A copy of the Henderson Group plc's Annual Report and
Accounts for the year ended 31 December 2010 can be obtained from
its registered office at 47 Esplanade, St Helier, Jersey, JE1 0BD
and at www.henderson.com.
33. Contingent liabilities
The following contingent liabilities existed or may exist at 31
December 2010:
-- In the normal course of business, the Group is exposed to
certain legal issues, which can involve litigation and arbitration,
and may result in contingent liabilities;
-- In the normal course of business, the Group enters into
foreign exchange contracts for Group and Henderson Group hedging
purposes and for facilitating foreign currency transactions of its
clients. Such contracts can give rise to contingent
liabilities;
-- On 2 May 2006, the Hong Kong Securities and Futures
Commission announced that it had reached a settlement with UKFP
(Asia) HK Limited (formerly part of Towry Law International)
regarding certain legacy products sold by Towry Law International.
Significant payments have subsequently been made to investors in
line with accounting provisions made for that purpose. The
Directors are of the opinion that the provisions remaining at the
reporting date are adequate to cover any future payments;
-- Under the sale agreement with Pearl Group Limited, normal
tax-related warranties and indemnities given by the Group expire up
to six years from the disposal date of 13 April 2005;
-- Under the Towry Law UK sale agreement, normal tax-related
warranties and indemnities given by the Group expire up to six
years from the disposal date of 3 May 2006; and
-- Under the Implementation Agreement dated 6 July 2010 relating
to the transfer of management responsibilities to Aviva Investors
for the Henderson International Property Fund (Fund), the Group has
provided indemnities for certain losses arising from any breach of
the Group's responsibilities whilst performing its functions in
respect of the Fund and employment warranties for a period of two
years after the date of the agreement and tax-related warranties
for a period of six years after the date of the agreement. These
indemnities are subject to certain exclusions and limitations,
including a financial cap.
As at the date of approval of the 2010 financial statements, the
Group and Company neither foresee nor have they been notified of
any claims under outstanding warranties and indemnities from the
abovementioned sale agreements.
34. Acquisitions and disposals of subsidiaries
34.1 Acquisitions
The Group did not acquire any subsidiaries during the current
year or previous year. On 4 April 2011, the Group completed the
Gartmore Acquisition (refer to note 35). The entire share capital
of Gartmore Group Limited was contributed to the Company by its
parent for a value of GBP420.0m. The initial accounting for the
acquisition is incomplete as the fair value exercise and
identification of separately identifiable assets are ongoing. As a
result, disclosure of the assets and liabilities acquired cannot be
made in this Annual Report and Accounts.
34.2 Disposals
The Group did not dispose of any subsidiaries during the current
period.
35. Events after the balance sheet date
The Board has not, as at 15 June 2011, being the date the
financial statements were approved, received any information
concerning significant conditions in existence at the balance sheet
date, which have not been reflected in the financial statements as
presented. The Board has, however, given due regard to the events
described below which occurred after the balance sheet date.
On 4 April 2011, the Group completed the Gartmore Acquisition.
The entire share capital of Gartmore Group Limited was contributed
to the Company by its parent for a value of GBP420.0m. The
acquisition will reinforce the Group's position as a diversified
fund manager with product strength in traditional long-only and
absolute return offerings and will significantly enhance the
Group's presence in UK retail asset management industry.
Integration of Gartmore is expected to be completed during
2011.
Under the terms of the Gartmore Acquisition, Gartmore
shareholders received 0.6667 of a Henderson Group share (New
Henderson Group Shares) for each Gartmore share. In addition, the
New Henderson Group Shares ranked for the final 2010 dividend of
4.65 pence per share at a total cost of GBP11.3m.
On 18 March 2011, Henderson UK Finance plc, a subsidiary of the
Group, incorporated on 9 February 2011 announced an issue of
GBP150,000,000 7.25% p.a. notes due on 24 March 2016 (the Notes).
The Notes are unconditionally and irrevocably guaranteed within the
Group and by the Henderson Group plc. As part of the issue of the
debt, GBP32.4m of loan notes issued by the Company were exchanged
with Henderson UK Finance plc.
The Group has entered into multicurrency term and GBP revolving
loan facilities which may be utilised by the Group to meet
post-Gartmore Acquisition debt obligations and for general
corporate and working capital purposes. As a result, the Group has
cancelled its existing GBP25m revolving credit facility agreement
previously due to terminate on 31 March 2012 (refer to note
19),
The Company received a dividend of GBP32.4m from a subsidiary on
31 March 2011 and GBP51.0m on 19 April 2011.
36. Directors emoluments
The Directors of the Company have contracts of employment with
Henderson Group plc and Henderson Administration Limited. The
emoluments of the Directors of the Company who are also Directors
of Henderson Group plc are disclosed in the financial statements of
that company and an extract is reproduced below for ease of
reference. The emoluments of the Directors who are also directors
of other Henderson Group companies, but not Henderson Group plc,
are disclosed in the financial statements of Henderson
Administration Limited, as it is not practicable to apportion this
amount between their services as Directors of the Company and total
remuneration services as Director of other Henderson Group
companies.
2010 2009
GBPm GBPm
------------------------------------------- ------ ------
Salary and fees 0.7 0.7
Annual award bonus award before deferral 2.0 1.1
Share plan vesting 2.0 1.1
------------------------------------------- ------ ------
Total 4.7 2.0
------------------------------------------- ------ ------
Glossary
AUM
Assets under management
BAYE
Buy As You Earn Share Plan
Board
The board of directors of
HGI Group Limited
bps
Basis points
CFDs
Contracts for difference
Company
HGI Group Limited
Compensation ratio
Employee compensation and benefits
divided by total income
CSOP
Company Share Option Plan
DEP
Deferred Equity Plan
Directors
The directors of HGI Group Limited
ESOP
Employee Share Ownership Plan
EUR
Euros
ExSOP
Executive Shared Ownership Plan
FRC
Financial Reporting Council
FSA
The UK Financial Services Authority
FSCS
The Financial Services Compensation
Scheme
FX
Foreign exchange
GAAP
Generally Accepted Accounting Principles
Gartmore
Gartmore Group Limited and its controlled
entities
Gartmore Acquisition
The acquisition of the entire
share capital of Gartmore Group Limited
GBP
Pounds sterling
hedge funds
Hedge funds including
absolute return funds
Glossary (continued)
Group
HGI Group Limited and its controlled
entities
Henderson Group
Henderson Group plc and its controlled entities
HMRC
HM Revenue & Customs
IAS
International Accounting Standard
IFRIC
International Financial Reporting
Interpretations Committee
IFRS
International Financial Reporting Standards
as adopted by the European Union
IRR
Internal rate of return
LIBOR
London Inter-bank Offered Rate
LSE
London Stock Exchange
LTIP
Long-Term Incentive Plan
New Star
New Star Asset Management Group PLC
And its controlled entities
OEIC
Open-Ended Investment Company
Pearl
Pearl Group Limited and its subsidiaries
renamed as Phoenix Group Holdings
Pension Scheme
The Henderson Group Pension Scheme
Forward-looking statements
This announcement contains forward-looking statements with
respect to the financial condition, results and business of
Henderson Group. By their nature, forward-looking statements
involve risk and uncertainty because they relate to events, and
depend on circumstances, that will occur in the future. Henderson
Group's actual future results may differ materially from the
results expressed or implied in these forward-looking
statements.
For further detail, please see the Report and Financial
Statements for the year ended 31 December 2010, lodged together
with this announcement.
To view the full details of the 2010 Report and Financial
Statements, paste the following link into your web browser:
http://www.rns-pdf.londonstockexchange.com/rns/5127I_-2011-6-15.pdf
A copy of the Report and Financial Statements for the year ended
31 December 2010 has been submitted to the National Storage
Mechanism: www.hemscott.com/nsm.do
Copies can also be found on the Henderson Group plc website at
www.henderson.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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