Annual Financial Report

RNS Number : 1033O

Ashmore Group PLC

13 September 2011

 



Ashmore Group plc                                                                                                                        

+0700 13 September 2011

 RESULTS FOR THE YEAR ENDED 30 JUNE 2011

Ashmore Group plc, one of the world's leading emerging markets investment managers, today announces its audited results for the year ended 30 June 2011.

Highlights

•       Total net revenue of £333.8 million, an increase of 17% from FY2009/10 (£286.2 million)

−      Net management fees up by 31% to £249.3 million

−      Performance fees up 3% to £85.4 million (FY2009/10: £82.9 million)

•       Operating margin of 72% (FY2009/10: 73%)

•       Profit before tax of £245.9 million, an increase of 13% from FY2009/10 (£217.2 million)

•       Basic earnings per share of 28.1p (FY2009/10: 23.9p)

§  10.34p final dividend, making a full year dividend of 14.5p

§  Completion of the acquisition of EMM L.L.C. during the year

§ Final assets under management ("AuM") of US$65.8 billion at 30 June 2011, an increase of US$30.5 billion (86%) from US$35.3 billion at 30 June 2010 after the acquisition of EMM

Commenting on the preliminary results, Mark Coombs, Chief Executive Officer, Ashmore Group plc said:

"This was broadly a good year for the Group, with strong growth in AuM from both outperformance and net subscriptions and the resultant good financial performance in the management company.  This has also been a year of significant progress in both distribution and product development and through the acquisition of the dedicated emerging markets equities manager, Emerging Markets Management LLC."

"The opportunity for raising AuM from both developed country and emerging markets sources as they increasingly come to realise the attractiveness of the emerging markets asset classes over developed markets alternatives, remains a compelling one. We remain confident of further progress in the years to come."

Analysts/investors briefing

There will be a presentation for analysts at 09.00 on 13 September at the offices of Goldman Sachs at River Court, 7th Floor, 120 Fleet Street, London EC4A 2QQ. A copy of the presentation will be made available on the Group's website at www.ashmoregroup.com

Contacts

For further information please contact:

Ashmore Group plc Graeme Dell     [phone] Group Finance Director

MHP Communications                                 Gay Collins        [phone] / 07798 626 282 Jennifer Spivey  [phone] [e-mail]

Chairman's Statement

I am very pleased to be able to report upon another year of real progress at Ashmore.

In financial terms, we have reached new highs, in terms of AuM levels and profits.  This has been achieved primarily through organic growth and also by acquisition, with AuM reaching a closing level of US$65.8 billion, an increase of 86% for the year.  This has provided the foundation for the management fee income growth which, when combined with another good year for performance fees, has produced record income and profit levels.

Operationally I am extremely pleased to have seen the completion, during the period, of the acquisition of Emerging Markets Management LLC, a business similar to Ashmore's, focused entirely in the emerging markets.  The combination of their equities investment history with ours, principally in debt, has created the largest independent dedicated emerging markets multi asset class investment manager. On behalf of the whole Board I should like to extend a warm welcome to the team at AshmoreEMM and we look forward to working with them and seeing the results of our new equities business.

As the Company's business grows and prospers, the Board continues to give significant priority to ensuring that the highest standards of corporate governance and codes of best practice are followed throughout its worldwide operations.

Recognising the financial performance achieved in the year, taken together with the Board's confidence in the prospects for future growth, the Directors are recommending a final dividend of 10.34 pence per share for the year ended 30 June 2011 which, subject to shareholder approval, will be paid on 2 December 2011 to shareholders on the register on 4 November 2011.  This makes a total dividend for the year of 14.5 pence per share (FY2009/10: 13.0p).

Once again I would like to thank the whole Ashmore team for their tremendous efforts in achieving another successful year for the Company including the promotion into the FTSE-100 index effective next week. The increasing inflow of new assets and the continuing levels of good investment performance are impressive testaments to their success and will allow the Company to build upon its existing strong and solid business.  It is clear that the team's complete focus on understanding and interpreting the events of the emerging markets is core to its success and this focus will continue with a clarity and certainty.

Global events in recent months and the continuing market volatility highlight the ongoing repositioning of emerging and developed world markets.  I am confident that the Group, with its experience gained over many economic and market cycles, will continue to manage their investment strategies successfully as world events unfold.  I also remain confident that the opportunity for the emerging markets is a significant one and that Ashmore is well positioned to capture it.

Michael Benson

Chairman

CEO Statement

The financial year ended 30 June 2011 was broadly a good one for the Group.  Ashmore achieved strong growth in assets under management ("AuM"), from both outperformance and net subscriptions, and resultant good financial performance in the management company.  At the same time we managed to make progress with regard to our future growth plans by achieving some initial success in two major strategic plans - the development of a broader and deeper distribution platform and the acquisition of an emerging markets equities manager, Emerging Markets Management LLC ("EMM") as detailed below.

AuM Development and Financial Performance 

During the year AuM increased by 86% from US$35.3 billion to US$65.8 billion, comprising net subscriptions of US$15.5 billion, investment performance of US$5.1 billion and US$9.9 billion through the EMM acquisition. 

Overall gross subscriptions totalled US$23.0 billion with the highlights including a very successful take-up of an Asian retail multi-strategy fund in the first half, good levels of subscriptions into local currency and external debt from a very broad range of investors during the second half, and further currency overlay inflows throughout the year.

The absolute levels of gross redemptions increased to US$7.5 billion (FY2009/10 US$3.7 billion) reflecting of course our absolute growth in scale, but also in part the increase in retail originated AuM where turnover rates are typically higher than from institutionally sourced assets.  Additionally, the natural maturity profile of special situations investments has contributed somewhat as asset realisations from sales of investments at this point in the cycle returned US$0.5 billion capital to investors over the year from a total of US$3.4 billion invested at the start of it.  However, all in all our firm wide redemption rate of 16% per annum remains relatively low.

Financial Performance

Net revenue in the year increased by 17% to £333.8m driven by a 31% growth in management fee income and a second successive year of record performance fees.  We increased our operating cost base as intended in line with our growth plans with modest net headcount increases, before adding a further 70 people through the EMM acquisition.  Variable compensation for the year, as a percentage of earnings before variable compensation, interest and tax ("EBVCIT") remained exactly in line with our planned level of 19% (FY2009/10 18%).  As a result, our operating margins have reduced slightly to 72%, and as our target remains consistent - to maintain an industry leading operating margin whilst growing the scale of the business - we were delighted to record a fifth successive year in the "70s".  However, given our growing scale and the acquisition, which has historically operated on lower margins, we would expect this to finally enter the "60s" in the year to come, as long anticipated.

Strategic Progress

This has been a year of significant progress in both distribution and product development and through the acquisition of the dedicated emerging markets equities asset manager, EMM. 

Last year we outlined the process underway in building a broader distribution platform, and this is an initiative on which we have continued to focus.  Firstly, we have deepened the distribution team, increasing the headcount further from 21 to 32.  The team is being reorganised to provide expertise aligned to the specific needs of the institutional and retail client segments with hiring across all areas of business development, client/account management and service delivery.  This structure is in place throughout our principal global distribution locations - London, New York, Tokyo, Singapore, Beijing and Melbourne - with further dedicated distribution staff within our local asset management businesses in Brazil and Turkey - all organised as a single centrally managed, but globally located team.  Added to their increased scale in headcount terms, our New York, Tokyo and Beijing operations have become further licensed during the year by local regulators, providing us with the platform to increase our distribution from these centres to a wider range of investors.  The coming year is expected to see us complete the reorganisation of our distribution platform.

In line with these developments the period has seen the launch of many new funds and segregated accounts as conduits for asset raising and we expect this trend to continue this year. This included the launch in December 2010 of our first sponsored suite of US SEC registered 40 Act funds for US institutional and retail investors providing by the year end a full range of global emerging markets debt and equities funds.  We aim to grow these by partnering with financial intermediaries including private banks, broker/dealers and other retail distributors and as we develop track records in these conduits, expect to see steady and significant assets from these channels. 

Acquisition

In line with our stated strategy of increasing the scale of our public equities theme we announced in February our intention to acquire a 62.9 per cent stake in EMM, a long established dedicated emerging markets equities manager and following a strong level of support from their investors and our shareholders the transaction was completed on 31 May 2011. 

(1)     Strategic Rationale.

Simply expressed our stated ambition is to be the pre-eminent specialist emerging markets investment manager covering all asset classes.  We recognise that our most significant gap remains a lack of scale within the equities theme and the acquisition of EMM provides this scale and proven investment capability in a dedicated emerging markets equities business.  The transaction, with a proportion of the consideration in the form of an earnout over three years post completion, and the deepening of equity ownership across a broader number of their staff, was structured to align our interests with the team at EMM.

(2)     Activities To Date.

The business was rebranded AshmoreEMM immediately on completion.

Clients have all received confirmation that this reflects our strategic objectives and the scale benefits of a larger house providing all investment management products to customers, whilst providing confidence in the continuity in investment philosophy and process at AshmoreEMM which will not change.  Furthermore, AshmoreEMM has now become responsible for the investment management of all centrally managed equities products within the Group through a unified management structure and Investment Committee, incorporating all global equities investment professionals in the Group. 

The global Ashmore distribution team has now incorporated the existing AshmoreEMM product range onto our distribution platform and has ensured that the appropriate local account management engagement occurs for all clients and we have begun to develop products to take advantage of the Group's wide range of existing clients.  The physical integration of the AshmoreEMM business onto the core portfolio management and fund accounting systems used across the Group has also begun, with the client relationship management and general ledger systems being the first fully integrated.  We would expect to have completed the necessary level of systems integration with AshmoreEMM within the financial year to 30 June 2012.

(3)     Going Forward.

Now we have to make it work. The investment managers have to outperform, distribution have to raise assets and technology and operations areas have to deliver the systems and process improvements needed. Understandably, the efforts involved in the migration over to new technology systems and processes will be significant, but we are very confident in the combined talents of the operations, technology and other support teams to deliver these projects between now and the end of the financial year to 30 June 2012.

In line with the reorganisation undertaken we will report progress going forward within the equities theme of our global asset management business. 

Theme Reclassification

In line with the Group's steady evolution, the investment themes into which all funds and accounts are organised have been reclassified going forward.  This process is driven by our desire to align the reporting of our business in a manner with which the investment community is familiar and looks to allocate assets, as well as being satisfied that a particular theme attains critical mass and is not correlated in performance terms exactly with another existing theme. 

The first reclassification is the separate identification of a dedicated investment theme of emerging markets blended debt, where such mandates specifically combine external, local currency and corporate debt.  This reflects the significant demand we see from institutional investors seeking returns benchmarked against blended indices comprised typically of external debt and local currency, with in some cases a corporate debt component. In such mandates, clients expect to see a blend of debt themes at all times, although of varying weighting, and we are measured against tailor-made blended indices reflecting a client's strategic commitment to the three themes and their neutral view of the appropriate weighting of the three themes.  The decisions we make are tactical variations around this.  In contrast, going forward, the existing external debt theme contains funds and accounts benchmarked against a single sovereign emerging markets external debt index, although some mandates may include an ability to off index/cross-over invest into other themes such as local currency, corporate and special situations assets, with the firm's flagship EMLIP fund having invested in this manner since inception in 1992.  Irrespective of the ability to invest across the debt themes, such accounts are usually majority external debt as allocations to other debt themes are always seen as tactical rather than strategic. 

Secondly, we have reclassified the real estate and infrastructure funds organised currently within the "Other theme" in combination with our special situations assets to create an overall Alternatives theme.  This recognises the similarity in nature of these strategies' investments in particular their long term and less liquid nature, and hence of fund structure and investment process across them, as well as reflecting how they are viewed by distributors and other intermediaries.  Thirdly, given the scale of AuM within currency overlay/hedging, we have created a dedicated currency overlay/liquidity theme recognising the different nature and risk profile of these products which results in a different revenue margin profile.

People and Culture

In a period when dramatic economic events in the developed world were arising so frequently, given our exclusive focus on the emerging markets, our cultural sense of identity is I believe stronger than ever. 

The year has seen the recognition of our investment professionals' performance with an award from European Pensions as Emerging Markets Manager of the Year, an Investment Excellence award from Global Investor for Emerging Markets Fixed Income and the Asian Investor investment performance award for Best Emerging Markets Debt manager.  Given the significant increase in competition across emerging markets fund management as others progressively share our vision, it is particularly satisfying to be recognised for our ongoing outperformance in this way.  I should like to thank everyone at Ashmore for the huge efforts that went into achieving the year's investment, financial and operational results. Whilst the distribution and acquisition developments described in detail above were two key strategic targets undertaken in the year, there is much more hard work ahead of us all in order to allow us to take maximum advantage of the opportunity presented through these and other initiatives.  In the year to come, and reflecting the investments we have made in both, we have to become a leading performer in equities, as well as maintain that in external, local currency and corporate debt, foreign exchange and alternatives, and our distribution team has to deliver upon raising assets across a broader range of products.  I am confident that we will rise to these challenges and achieve further success across the Ashmore business.

Outlook

In the new financial year, unaudited annual performance fees for the funds with performance years ended 31 August 2011 were £18.8 million (August 2010: £43.5 million). 

The major recent economic events in the developed markets, Greek debt restructuring and the raising of the US debt ceiling, were predictable given the deleveraging still required to occur across the highly indebted developed world.  What was not so obvious was the degree of political chaos and irresponsibility that ultimately led to the US rating downgrade.  It is now no longer the emerging economies that should be described as the homes of default and fiscal irresponsibility, although some home country bias will of course persist amongst developed world politicians and investors. 

The global sell off resulting from these events has further reinforced the fundamental attractiveness across the emerging markets asset classes.  Emerging markets external sovereign debt is now relatively safer than it was compared to US treasuries and as a result we anticipate spreads over those treasuries will tighten significantly in the coming year.  Local currencies are set to rise against the US dollar in the next six months as we expect central banks to steadily use currency appreciation to control domestic inflation.  The opportunity for generating alpha through active management continues in this area given the variations of monetary and exchange rate policy being undertaken by different countries reflecting their different cycles.  Corporate debt in emerging markets is continuing to grow strongly as companies want tenor not available from bank lending and will increasingly turn to the bond markets. Our long developed expertise in this asset class should continue to provide strong investment outperformance.

Emerging markets equity valuations suggest the upcoming quarter may represent a good entry point with earnings forecast to grow strongly over the medium term.  Our alternatives theme is one of much activity at present as we continue to realise investments, find some very interesting new opportunities as a result of tightening balance sheets worldwide within our special situations funds, as well as making new investments in our real estate joint venture funds in China and Russia.  At the same time we are looking to replicate our real estate and infrastructure initiatives in other emerging economies where demand for such assets is of course significant.

The key attributes for success in asset management are of course to consistently outperform and to raise and keep assets whilst running an effective and scaleable operational platform.  Our strong investment performance has continued so far, but must be maintained, and we will also need to utilise our increased product breadth and global distribution capacity on an ever more robust technology and operations platform to succeed.

The opportunity for raising AuM from both developed country and emerging markets sources as they increasingly come to realise the attractiveness of the emerging markets asset classes over developed market alternatives, remains a compelling one. We want to be a major participant in both.  To that end in the coming year, we would like to further develop our strategic plans in local asset management operations within the emerging markets themselves. 

There remains much to do to build our Company, but we are up for the challenge.

Mark Coombs

Chief Executive Officer

Business Review

The financial and operational highlights previously described are analysed further in the following financial and business review, providing a detailed account of the Group's activities and their financial impact in the period.

Key Performance Indicators

	Year ended 30 June 2011	Year ended 30 June 2010
Year end AuM	US$ 65.8 bn	US$ 35.3 bn
Average AuM	US$46.6  bn	US$ 31.3 bn
Average net management fee margins (bps)	86bps	95bps
Operating profit margin	72%	73%
Variable compensation ("VC")/ EBVCIT	19%	18%
Year end headcount	246	165

Ashmore Group result

The Group recorded an operating profit before tax for the year ended 30 June 2011 of £239.4 million (FY2009/10: £209.3 million), giving rise to an operating margin of 72 per cent (FY2009/10: 73 per cent); a profit before tax of £245.9 million (FY2009/10: £217.2 million); and a profit after tax of £190.2 million (FY2009/10: £160.6 million). The financial results are analysed further below.

Acquisition of Emerging Markets Management LLC

The Group acquired an effective 62.9 per cent stake in Emerging Markets Management LLC on 31 May 2011.  This entity has subsequently been renamed Ashmore EMM LLC ("AshmoreEMM").

The results of AshmoreEMM for the period from 1 June to 30 June are included in the consolidated statement of comprehensive income.  AuM on acquisition, totalling US$9.9 billion, has been classified within the equities theme.

The detailed accounting for the acquisition is described below and in the accompanying note 9 to the accounts.

Assets under Management and Fund Flows

During the year AuM increased by 86% from US$35.3billion to US$65.8 billion, comprising net inflows of US$15.5 billion, investment performance of US$5.1 billion and AuM through acquisition of US$9.9 billion.

The year saw strong levels of gross subscriptions overall, which totalled US$23.0 billion (FY2009/10: US$11.3 billion), particularly into the more liquid themes. Good levels of institutional subscriptions were received into the currency overlay and blended debt themes throughout the year. Subscriptions in external debt and local currency were strong in the second half in both Ashmore sponsored funds and segregated institutional mandates.  Retail flows into the multi-strategy theme regained momentum in the final quarter - after a strong first half saw the Asian retail-focused fund temporarily reach capacity at the end of the second quarter.

The absolute levels of gross redemptions increased to US$7.5 billion (FY2009/10 US$3.7 billion) in line with our absolute growth in scale.  These levels of redemptions also partly reflect the increase in retail originated AuM where turnover rates are typically higher than institutionally sourced assets, even early in a fund life. Redemptions in special situations funds reflect monies being returned to investors as planned following realisations.

New funds and accounts

The year saw further launches of new funds, which contributed significantly to the increase in AuM.  Fourteen new public funds were launched, including 6 US 40 Act funds within the local currency theme (Local Currency Fund, Local Currency Bond Fund), external debt theme (Sovereign Debt Fund), corporate debt theme (Corporate Debt Fund), blended debt theme (Total Return Fund) and equities theme (Equity Fund) A further 5 SICAV sub-funds were launched within the local currency theme (Investment Grade Local Currency Fund, Inflation Linked Bond Fund), corporate debt theme (Local Currency Corporate Debt Fund), blended debt theme (Total Return Fund) and overlay/liquidity theme (Sterling Liquidity Fund). In addition, within the Group's local asset management subsidiaries, a Colombian infrastructure fund and a Brazilian long-short equity fund were also launched.

There were also 8 new segregated and white label funds won during the year, within the external debt, local currency, corporate debt and blended debt themes.

AuM movements by investment theme as classified by mandate

In line with the interim results and the historically reported quarterly updates, the AuM by theme as classified by mandate is shown in the following table. This details gross subscriptions and redemptions, investment performance and average management fee margins for each theme.

AuM movements by investment theme as mandated:-

		Gross subscriptions /	Gross			Average  management
	Jun-10	Acquisition	Redemptions	Performance	Jun-11	fee margins
	US$bn	US$bn	US$bn	US$bn	US$bn	bps
External Debt	19.4	3.7	(2.9)	2.9	23.1	63
Local Currency	7.0	4.3	(1.3)	1.4	11.4	87
Corporate Debt	0.9	0.5	(0.1)	0.1	1.4	169
Equities	0.2	10.0	(0.1)	0.0	10.1	102
Special Situations	3.4	0.0	(0.8)	(0.1)	2.5	227
Multi-Strategy	2.0	7.3	(1.3)	0.4	8.4	131
Other	2.4	7.1	(1.0)	0.4	8.9	19
	35.3	32.9	(7.5)	5.1	65.8	86

As outlined in the Chief Executive Officer's report, in line with the Group's long term evolution the investment themes into which all funds and accounts are organised will be restructured going forward with three principal changes.

Firstly, the creation of a dedicated investment theme of emerging markets blended debt, to combine external, local currency and corporate debt.  This reflects the significant demand from investors, particularly to begin with larger segregated mandates, seeking returns benchmarked against blended indices comprised typically of external debt and local currency indices, with in some cases a corporate debt component. In contrast, the external debt theme that remains is where funds and accounts are benchmarked against a single sovereign emerging markets external debt index.

Secondly, capturing the real estate and infrastructure funds currently organised within the "Other" theme and combining these with our special situations assets to create an Alternatives theme which recognises the similarity of fund structure and investment process across these strategies as well as reflecting how they are viewed by distributors and other intermediaries. 

Thirdly, given the scale of AuM within currency overlay/hedging, the creation of a dedicated currency overlay/liquidity theme recognising the different nature of the investment process for these products which results in a different revenue margin profile.

Accordingly the same full breakdown of our AuM within the revised themes is presented in the following table:-

		Gross subscriptions /	Gross			Average  management
	Jun-10	Acquisition	Redemptions	Performance	Jun-11	fee margins
	US$bn	US$bn	US$bn	US$bn	US$bn	bps
External Debt	12.3	2.8	(2.8)	2.0	14.3	75
Local Currency	6.0	3.6	(1.3)	1.1	9.4	90
Corporate Debt	0.8	0.5	(0.1)	0.1	1.3	169
Blended Debt	8.4	1.6	(0.1)	1.0	10.9	47
Equities	0.2	10.0	(0.1)	0.0	10.1	102
Alternatives	3.4	0.2	(0.8)	0.0	2.8	217
Multi-Strategy	2.0	7.4	(1.3)	0.3	8.4	129
Overlay / Liquidity	2.2	6.8	(1.0)	0.6	8.6	17
	35.3	32.9	(7.5)	5.1	65.8	86

Subsequent quarterly AuM statements, interim and full year results will be reported on this revised basis.

AUM - as invested

Notwithstanding the changes to the theme classifications mentioned above there remains an alternative analysis of AuM. Here we report "as invested" by underlying asset class which adjusts from "as classified by mandate" to take account of the allocation into underlying asset class of multi-strategy, blended debt and, where possible the currency overlay themes; and of crossover investment from within certain external debt funds. This analysis demonstrates the greater significance of the local currency and corporate debt themes, which have both grown further in the period reflecting the allocation of funds invested into these themes.  The charts below illustrate the impact of moving between the "as classified by mandate" and the "as invested" analysis as at 30 June 2011, and the previous year end:-

AUM as classified by mandate

	30 June 2010		30 June 2011
Theme	AuM (US$bn)	%	AuM (US$bn)	%
External debt	12.3	35	14.3	22
Local currency debt	6.0	17	9.4	14
Corporate debt	0.8	2	1.3	2
Blended debt	8.4	24	10.9	17
Equities	0.2	1	10.1	15
Alternatives	3.4	10	2.8	4
Multi-strategy	2.0	5	8.4	13
Overlay / Liquidity	2.2	6	8.6	13
TOTAL	35.3	100	65.8	100

AUM as invested

	30 June 2010		30 June 2011
Theme	AuM (US$bn)	%	AuM (US$bn)	%
External debt	17.5	50	18.6	28
Local currency debt	6.7	19	20.8	32
Corporate Debt	2.2	6	8.9	7
Equities	0.4	1	12.1	14
Alternatives	6.2	18	4.8	18
Overlay / Liquidity	2.3	6	0.6	1
TOTAL	35.3	100	65.8	100

Investor profile - type and geography

The Group's AuM are sourced from a diverse range of investors, which remain predominantly institutional in type (30 June 2011 84%; 30 June 2010: 92%), including pension providers, government agencies, banks and insurers. In line with the stated distribution strategy the period has seen a marked increase in funds where the underlying investor is more retail in nature.  In these situations typically the Group distributes the products via intermediaries such as private banks, brokers and other retail distributors.  The largest of these products was the Asian retail multi-strategy fund, for which there were strong flows in the first half and, after temporarily reaching capacity at the end of the second quarter, further inflows were received in the final quarter of the year.

Within the institutional investor profile, the most significant categories of investor remain government agencies, corporate and public pension plans which together account for 60% of all AuM . During the period significant further fund inflows were received within the government category, which include those from emerging markets central banks, reserve managers and sovereign funds as part of the third phase of the Group's strategy - mobilising emerging markets capital. The proportion of total assets managed for each of the major institutional investor types has remained reasonably stable measured from one year end to the other, with absolute increases in the corporate and public pensions categories being driven by the AshmoreEMM acquisition, since this type of client represented the majority of their AuM.

AuM by investor type

Type	30 June 2010 %	30 June 2011 %
Governments	34	31
Public pension plans	15	15
Corporate pension plans	17	14
HNWI/retail	8	16
Fund/sub advisor	5	9
Banks	8	6
Other	3	5
Insurance	4	2
Fund of funds	4	1
Permanent capital	2	1
TOTAL	100	100

Investor Geography

The region demonstrating the strongest growth in AuM overall is Asia Pacific, in line with strong inflows into the Asian retail-focused product and government category and there were also continued inflows from the Middle East. The AuM of US$9.9 billion arising from the acquisition of AshmoreEMM, is largely sourced from developed markets principally the US and Europe.

AuM by investor geography

Geography	30 June2010 %	30 June 11 %
Europe	27	23
UK	12	13
Middle East	20	14
Americas	20	20
Asia Pacific	21	30
TOTAL	100	100

Management fees and performance fees

As the Group's AuM are predominantly US dollar-based, the majority of management and performance fees are also US dollar denominated.  The table below sets out AuM, net management fees, net management fee margins, and performance fees, by theme in US dollars:

Underlying US dollar management and performance fees

	AuM 30 June 2010	AuM 30 June 2011	Net management fees  FY2010/2011	Average management fee margin	Performance fees FY2010/11
	US$bn	US$bn	US$m	bps	US$m
External debt	12.3	14.3	99.5	75	93.1
Local currency	6.0	9.4	61.5	90	2.9
Corporate debt	0.8	1.3	20.0	169	8.1
Blended debt	8.4	10.9	44.7	47	1.6
Equities (Note 1)	0.2	10.1	8.2	102	3.8
Alternatives	3.4	2.8	74.6	217	16.8
Multi-strategy	2.0	8.4	81.1	129	8.1
Overlay / Liquidity	2.2	8.6	8.5	17	-
Total (US$)	35.3	65.8	398.1	86	134.4
Total (GBP)	22.0	41.0	249.3	86	85.4

Note 1: The equities theme includes US$9.9 billion of AuM resulting from the acquisition of EMM which has a revenue margin of 65 bps. The AuM was only included in the theme for the final month of the period.

Management fees

Net management fee income in Sterling terms increased by 31% to £249.3 million as a function of increased levels of average AuM (FY2010/11: US$46.4 billion; FY2009/10: US$31.3 billion), stable GBP:USD foreign exchange rates (FY2010/11: 1.59 effective; FY2009/10: 1.57 effective) offset by a reduction in average management fee margins (FY2010/11: 86 bps; FY2009/10: 95 bps).  This reduction has been partly driven by a change in the mix between the themes arising from strong inflows into the lower margin overlay/liquidity theme.  This theme attracts a lower management fee reflecting the hedging rather than active management nature of the mandate.  Margins on the acquired AshmoreEMM business were also below the average margin, which also contributed to the overall margin reduction. There was some reduction in margin in the external debt and local currency themes driven by some re-pricing of SICAV products during the year and the impact of tiered pricing on institutional mandates.

Performance fees

Total performance fee income for the year increased by 3% to £85.4 million (FY2009/10: £82.9 million) being earned across the investment themes. The majority of these fees were annual performance fees from funds having August, December and April year ends with the balance being made up of other annual performance fees and crystallised fees arising on redemptions during the period.

It is the Group's policy to maintain a good balance between those funds where the Group is eligible to earn performance fees and those that generate revenues for the Group solely through management fees. At the year end the Group was eligible to earn performance fees on 38% of AuM (30 June 2010: 56%), or 43% of funds/accounts (30 June 2010: 63%).  Of this AuM , 41% of it , whilst able to generate performance fees in the future, was ineligible to do so in FY2010/11 either as a result of such fees only being available at the end of the multi-year fund life such funds not earning a fee in the performance year, or as a result of rebate agreements.

Operating costs and operating margin

The Group has maintained its tightly controlled cost structure, with a low proportion of recurring costs and a large proportion of variable performance related costs. Headcount increased from 165 at 30 June 2010 to 246 at 30 June 2011, of which 67 related to the AshmoreEMM acquisition.  The increase in wages and salaries to £11.5 million (FY2009/10: £9.7 million) is in line with this headcount increase, taking into account the fact that the additional AshmoreEMM headcount is only included for one month.  There has been continued recruitment to support the future growth of the business particularly to support the development of our distribution and investment teams.

Variable compensation costs represent the majority of overall personnel expenses and consists of performance related bonuses, share based payments and associated social security costs. Variable compensation is calculated as a percentage of profit before variable compensation, interest and tax. The rate of variable compensation applied in the year to 30 June 2011 was increased to 19% (FY2009/10: 18%) reflecting the strong levels of AuM subscriptions and good investment performance.

The overall total for other expenses for the year to 30 June 2011 was £22.9 million (FY2009/10: £18.1 million) with key drivers for the year on year rise being increased professional fees of £5.5 million (FY2009/10: £3.5 million), largely resulting from acquisition-related costs.  Other costs have increased reflecting the inclusion of one month's expenses for AshmoreEMM, together with the geographic expansion of the business and increased distribution activity.

Taxation

The vast majority of the Group's profit is subject to UK taxation. The Group's effective tax rate for the year is 22.7% (FY2009/10: 26.1%). The tax rate for the year is less than the blended UK corporation tax rate of 27.5% principally as a result of deductions in respect of share based awards vesting during the period.

There is a £17.9 million deferred tax asset on the Group's balance sheet at 30 June 2011, as a result of timing differences in the recognition of the accounting expense and actual tax deductions in connection with share price appreciation on share-based awards.

Balance sheet management and cash flow

It is the Group's policy to maintain a strong balance sheet in order to support regulatory capital requirements, to meet the commercial demands of current and prospective investors, and to fulfil development needs across the business which include funding establishment costs of distribution offices and local asset management ventures, seeding new funds, trading or investment in funds or other assets and other strategic initiatives.

Regulatory capital requirements have decreased, reflecting the reduction in regulatory capital on seed investments and reduced non Sterling cash balances.

As at 30 June 2011, total equity attributable to shareholders of the parent was £498.5 million, as compared to £370.5 million at 30 June 2010. There is no debt on the Group's balance sheet.

Cash

The Group's cash and cash equivalents balance increased by £24.6 million in the year to £369.0 million. The Group continues to generate significant cash from operations, totalling £253.4 million in the year (FY2009/10: £250.9 million), from which it paid the following significant items: £93.7 million in cash dividends (FY2009/10: £82.6 million); £62.1 million of taxation (FY2009/10: £52.9 million); £12.5 million for net new seed capital investments (FY2009/10: £26.9 million); £10.9 million for purchase of own shares to satisfy share awards (FY2009/10: £34.0 million); and £41.2 million to acquire EMM (FY2009/10: £2.3 million, in respect of an associate).

The Group's cash balances are invested with the objective of optimising returns within a strict framework which emphasises capital preservation, security, liquidity and counterparty risk.  Cash is invested only with institutions and liquidity funds with approved credit ratings of A or better.  Typically during the financial year these have been short-term cash deposits with banks and investments in the Group's S&P AAA rated money market rated liquidity funds. Based on the level of cash balances at 30 June 2011, a 1 per cent change in UK interest rates would have a £3.7 million impact on the Group's profit before tax over a year.

Seed capital investments

As at 30 June 2011 the amount invested was £80.1 million (at cost), with a market value of £91.1 million. During the period the largest seed capital investments were in respect of the launch in December 2010 of our first sponsored suite of US SEC registered 40 Act funds for US institutional and retail investors. In addition the period saw the seeding of further funds managed by the Group's local asset management subsidiaries and associates. Some of the seed capital investments made in earlier periods were able to be recycled profitably.

Purchase of own shares

The Group purchases and holds shares through an Employee Benefit Trust ("EBT") in anticipation of the exercise of outstanding share options and the vesting of share awards. At 30 June 2011 the EBT owned 24,555,042 (30 June 2010: 36,007,445) ordinary shares.

Acquisition of Emerging Markets Management LLC

The Group acquired an effective 62.9 per cent stake in Emerging Markets Management LLC on 31 May 2011. 

Ashmore paid initial consideration totalling £64.9 million (US$106.9 million).  This consisted of £49.5 million (US$81.5 million) cash and £15.4 million (US$25.4 million) in Ashmore Group plc shares.  Further consideration is potentially payable at December 2011, December 2012 and December 2013, dependent on the level of management fee revenues.  This has been treated as contingent consideration on acquisition and valued at £28.1 million (US$46.1 million).  Total consideration is £93.0 million (US$153.0 million).

On acquisition, 19.2% of AshmoreEMM shares were fully vested and held by the employees and management of AshmoreEMM. Employees and management also held unvested shares representing 17.9%. As the unvested shares have performance conditions related to continued employment, these are accounted for as share-based payments in accordance with IFRS2: Share-based payment, which will result in an annual charge to the income statement in the period to vesting of £5.4 million (US$8.6 million).

Goodwill and intangible assets

At the acquisition date, EMM had tangible net assets of £13.8 million (US$22.7 million) with intangible assets valued at £41.3 million (US$68.0 million).  The principal intangible assets identified were fund management relationships £39.5 million (US$65.0 million) and trade name £1.8 million (US$3.0 million).  Estimated useful lives of 8 years and 10 years respectively were ascribed to these assets. The non-controlling interest was valued at £12.9 million (US$21.2 million) giving rise to goodwill of £50.8 million (US$83.5 million) recognised on the acquisition date. The goodwill and intangible assets  are denominated in US Dollars, the functional currency of EMM and were translated into Sterling at the exchange rate at the date of the transaction (GBP1.00:1.6448).

Deferred acquisition costs (DAC)

As in prior years, the Group carries on its balance sheet unamortised deferred acquisition costs of £6.9 million (FY2009/10: £9.3 million) in respect of the launch of Ashmore Global Opportunities Limited ("AGOL"), a publicly listed closed-ended investment company incorporated in 2007.

During 2011, the shares of AGOL have traded at a discount to the net asset value of its balance sheet and as previously where this discount is in excess of 10 per cent for 12 consecutive months, an EGM is required to consider whether AGOL should be wound up. The EGM was held on 18 April 2011, with over 92 per cent of the voting shareholders voting against winding up. Should the discount continue to exceed 10 per cent for a further 12 consecutive months, an EGM will once again be required.

Should, as a result of any future vote, AGOL be wound up, this would not result in an acceleration or recognition of these deferred acquisition costs.  An early termination of AGOL would instead trigger the full recovery of the initial set-up costs including the portion of £7.5 million amortised to 30 June 2011.

Foreign exchange management 

The Group's long-standing policy is to hedge up to two-thirds of the foreign exchange exposure in connection with its net management fee cash flows, using either forward foreign exchange contracts or options for up to two years forward. The GBP/USD exchange rate to 30 June 2011 ranged between GBP1.00:1.4945 - 1.6707USD.

The Group experienced an overall foreign exchange loss for the year to 30 June 2011 of £7.4 million (FY2009/10: £7.0m gain), comprising a loss of £9.2 million (FY2009/10: gain of £11.8 million) on the translation of non-Sterling denominated assets and liabilities, partially offset by a gain of £1.8 million (FY2009/10: loss of £4.8 million) on realised and unrealised hedging transactions.

The level of foreign exchange hedges in place at 30 June 2011 is US$215.0 million.  This consists of options (US$154.5 million) and forwards (US$60.5 million) in respect of FY2011/12 and FY2012/13 net management fee cash flows.  Of the hedges, US$161.5 million relate to FY2011/12 and US$53.5 million relate to FY2012/13.

The options effectively operate as a collar, and together with the forwards, protect the Sterling value of US$215.0 million of the Group's forecast management fee revenue cash flows for FY2011/12 and FY2012/13 from being impacted by currency movements (outside the contracted ranges for the collars). 

The options and forwards have been marked-to-market at the year-end rate of GBP1:1.6053USD. 

As designated hedges the mark-to-market movement in the value of the options and forwards will be taken through reserves, until such time as they and the associated hedged revenues mature, so long as the hedges are assessed as being effective.  If assessed as ineffective, the mark-to-market of the options and forwards will be taken through the income statement.

Dividend

In recognition of the financial performance during the period, and our confidence in the Group's future prospects, the Directors are recommending a final dividend of 10.34 pence per share for the year ended 30 June 2011 which, subject to shareholder approval, will be paid on 2 December 2011 to all shareholders who are on the register on 4 November 2011.

An interim dividend for the six-month period to 31 December 2010 of 4.16 pence (2009: 3.66 pence) was paid on 4 April 2011.  Together, these result in a full-year dividend of 14.5 pence (2010: 13.0 pence), an increase of 11.5%.

Graeme Dell

Group Finance Director

Consolidated statement of comprehensive income

Year ended 30 June 2011

	Notes	2011 £m	2010 £m
Management fees		250.9	192.1
Performance fees		85.4	82.9
Other revenue		6.5	6.4
Total revenue		342.8	281.4
Distribution costs		(1.6)	(2.2)
Foreign exchange		(7.4)	7.0
Net revenue		333.8	286.2
Personnel expenses	2	(71.5)	(58.8)
Other expenses	3	(22.9)	(18.1)
Operating profit		239.4	209.3
Finance income		6.5	7.9
Share of profit of associates		-	-
Profit before tax		245.9	217.2
Tax expense	4	(55.7)	(56.6)
Profit for the year		190.2	160.6
Other comprehensive income:
Exchange adjustments on translation of foreign operations		2.8	0.4
Net gains on available-for-sale and held for sale financial assets including tax		9.3	7.3
Gains on available-for-sale and held for sale financial assets previously recognised directly in equity		(5.3)	(5.9)
Cash flow hedge intrinsic value losses		(0.1)	(0.6)
Total comprehensive income for the year		196.9	161.8
Profit attributable to:
Equity holders of the parent		189.0	160.0
Non-controlling interests		1.2	0.6
Profit for the year		190.2	160.6
Total comprehensive income attributable to:
Equity holders of the parent		195.3	161.2
Non-controlling interests		1.6	0.6
Total comprehensive income for the year		196.9	161.8
Earnings per share:
Basic	5	28.08p	23.87p
Diluted	5	26.63p	22.51p

Consolidated balance sheet

Year ended 30 June 2011

	Notes	As at 30 June 2011 £m	As at 30 June 2010 £m
Assets
Property, plant and equipment		3.4	3.8
Investment in associate		2.3	2.3
Non-current asset investments		3.5	2.0
Other receivables		0.8	0.7
Deferred tax assets		17.9	14.4
Deferred acquisition costs		6.9	9.3
Goodwill and intangible assets	7	103.2	6.7
Total non-current assets		138.0	39.2
Cash and cash equivalents		369.0	344.4
Trade and other receivables		68.2	45.7
Available-for-sale financial assets		41.4	39.9
Total current assets		478.6	430.0
Non-current assets held for sale		59.0	35.9
Total assets		675.6	505.1
Equity
Issued capital		-	-
Share premium		15.7	0.3
Retained earnings		473.5	365.8
Foreign exchange reserve		3.3	0.9
Available-for-sale and held-for-sale fair value reserve		6.7	4.1
Cash flow hedging reserve		(0.7)	(0.6)
Total equity attributable to equity holders of the parent		498.5	370.5
Non-controlling interests		16.4	2.2
Total equity		514.9	372.7
Liabilities
Trade and other payables		21.4	-
Deferred tax liabilities		1.6	1.3
Total non-current liabilities		23.0	1.3
Current tax		29.4	30.3
Derivative financial instruments		0.6	1.8
Trade and other payables		94.9	89.8
Total current liabilities		124.9	121.9
Non-current liabilities held for sale		12.8	9.2
Total liabilities		160.7	132.4
Total equity and liabilities		675.6	505.1

Approved by the Board on 12 September 2011 and signed on its behalf by:

Mark Coombs Chief Executive Officer

Graeme Dell Group Finance Director

 

Consolidated statement of changes in equity

Year ended 30 June 2011

	Issued capital £m	Share premium £m	Retained earnings £m	Foreign exchange reserve £m	Available-for-sale (AFS) and Held-for-sale (HFS) fair value reserve £m	Cash flow hedging reserve £m	Total equity attributable to equity holders of the parent £m	Non-controlling interests £m	Total equity £m
Balance at 1 July 2009	-	0.3	305.0	0.5	2.7	-	308.5	2.0	310.5
Profit for the year	-	-	160.0	-	-	-	160.0	0.6	160.6
Other comprehensive income:
Exchange adjustments on translation of foreign operations	-	-	-	0.4	-	-	0.4	-	0.4
Net gains on AFS/HFS assets including tax	-	-	-	-	7.3	-	7.3	-	7.3
Gains on AFS previously recognised in equity	-	-	-	-	(5.9)	-	(5.9)	-	(5.9)
Cash flow hedge intrinsic value losses	-	-	-	-	-	(0.6)	(0.6)	-	(0.6)
Purchase of own shares	-	-	(34.0)	-	-	-	(34.0)	-	(34.0)
Share based payments	-	-	19.1	-	-	-	19.1	-	19.1
Deferred tax related to share based payments	-	-	(2.1)	-	-	-	(2.1)	-	(2.1)
Dividends to equity holders	-	-	(82.2)	-	-	-	(82.2)	-	(82.2)
Dividends to non-controlling interests	-	-	-	-	-	-	-	(0.4)	(0.4)
Balance at 30 June 2010	-	0.3	365.8	0.9	4.1	(0.6)	370.5	2.2	372.7
Issue of share capital	-	15.4	-	-	-	-	15.4	-	15.4
Non-controlling interests arising on acquisition of subsidiary	-	-	-	-	-	-	-	12.9	12.9
Profit for the year	-	-	189.0	-	-	-	189.0	1.2	190.2
Other comprehensive income:
Exchange adjustments on translation of foreign operations	-	-	-	2.4	-	-	2.4	0.4	2.8
Net gains on AFS/HFS assets including tax	-	-	-	-	9.3	-	9.3	-	9.3
Gains on AFS previously recognised in equity	-	-	-	-	(5.3)	-	(5.3)	-	(5.3)
Cash flow hedge intrinsic value losses	-	-	-	-	-	(0.1)	(0.1)	-	(0.1)
Other reserve movements	-	-	1.4	-	(1.4)	-	-	-	-
Purchase of own shares	-	-	(10.9)	-	-	-	(10.9)	-	(10.9)
Share based payments	-	-	19.7	-	-	-	19.7	-	19.7
Deferred tax related to share based payments	-	-	(0.6)	-	-	-	(0.6)	-	(0.6)
Proceeds received on exercise of vested options	-	-	2.5	-	-	-	2.5	-	2.5
Dividends to equity holders	-	-	(93.4)	-	-	-	(93.4)	-	(93.4)
Dividends to non-controlling interests	-	-	-	-	-	-	-	(0.3)	(0.3)
Balance at 30 June 2011	-	15.7	473.5	3.3	6.7	(0.7)	498.5	16.4	514.9

Consolidated cash flow statement

Year ended 30 June 2011

	2011 £m	2010 £m
Operating activities
Cash receipts from customers	307.7	305.4
Cash paid to suppliers and employees	(54.3)	(54.5)
Cash generated from operations	253.4	250.9
Taxes paid	(62.1)	(52.9)
Net cash from operating activities	191.3	198.0
Investing activities
Interest received	1.4	1.5
Acquisition of subsidiary	(41.2)	-
Investment in associate	-	(2.3)
Purchase of non-current asset investments	(0.9)	(2.0)
Net purchase of non-current assets held for sale	(49.0)	(23.1)
Net sale of available-for-sale financial assets	37.4	(1.8)
Purchase of property, plant and equipment	(0.5)	(0.5)
Net cash used in investing activities	(52.8)	(28.2)
Financing activities
Dividends paid to equity holders	(93.4)	(82.2)
Dividends paid to non-controlling interests	(0.3)	(0.4)
Purchase of own shares	(10.9)	(34.0)
Net cash used in financing activities	(104.6)	(116.6)
Net increase in cash and cash equivalents	33.9	53.2
Cash and cash equivalents at beginning of year	344.4	288.4
Effect of exchange rate changes on cash and cash equivalents	(9.3)	2.8
Cash and cash equivalents at end of year	369.0	344.4
Cash and cash equivalents comprise:
Cash at bank and in hand	369.0	344.4
	369.0	344.4

 Notes to the financial statements

1) Basis of preparation and significant accounting policies

In preparing the financial information in this statement the Group has applied policies which are in accordance with IFRSs as adopted by the European Union at 30 June 2011.

The accounting policies listed in the Group's annual report for the year ended 30 June 2010, which is available from the Group's website, have been consistently applied, with the following additional clarification provided in respect of certain of these policies:

(a) 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 the fair value of net identifiable assets or liabilities acquired, including intangible assets identified, is recognised as goodwill. Costs of issuing debt or equity instruments are accounted for under IAS 32 and IAS 39. All other costs associated with acquisitions are expensed.

(b) Intangible assets

•Goodwill

Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Goodwill is tested at each balance sheet date for impairment and stated at cost less any accumulated impairment losses. Goodwill and intangible assets held by subsidiaries and denominated in a foreign currency are translated at the closing balance sheet rate. Any gain or loss on translation is included in other comprehensive income.

IFRS3 and IAS36 require goodwill to be allocated to cash-generating units for the purpose of impairment testing. The group is considered to have one cash generating unit and all goodwill has been allocated to this cash generating unit.

•Other intangibles

Intangible assets, such as management contracts and trade names acquired as part of a business combination, are capitalised where it is probable that future economic benefits attributable to the assets will flow to the Group and the fair value of the assets can be measured reliably. Both management contracts and brand names are recorded initially at fair value and then amortised, if appropriate, over their useful lives which have been assessed as being between 31 months and 10 years. The fair value at the date of acquisition is calculated using the discounted cash flow methodology and represents the valuation of the net residual revenue stream arising from the management contracts and brand name in place at the date of acquisition. These are included in the balance sheet as intangible assets. Other intangible assets held by subsidiaries and denominated in a foreign currency are retranslated at the closing balance sheet rate. Any gain or loss on translation is included in other comprehensive income.

(c) Share based payments

The Group issues share awards to its employees under share based compensation plans. The awards are accounted for inline with IFRS 2 Share-Based Payments. Phantom awards are classified as cash settled under IFRS2 share based payments. All other awards are classified as equity settled.

For equity settled awards the fair value of the amounts payable to employees is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the vesting period. The fair value of equity settled awards is measured using an appropriate valuation model, taking into account the terms and conditions upon which the instruments were granted.

For cash settled awards the fair value of the amounts payable to employees is recognised as an expense with a corresponding liability on the Group's balance sheet. The fair value is measured at the end of each reporting period and spread over the vesting period. The fair value of cash settled awards is measured using an appropriate valuation model, taking into account the terms and conditions upon which the instruments were granted.

2) Personnel expenses

Analysis of employee benefits expense

	Year ended 30 June 2011 £m	Year ended 30 June 2010 £m
Wages and salaries	11.5	9.7
Performance related bonuses	28.1	21.0
Share based payments	23.3	21.3
Social security costs	5.7	4.6
Pension costs	0.8	0.6
Other costs	2.1	1.6
Total employee benefits	71.5	58.8

3) Other expenses

	Year ended 30 June 2011 £m	Year ended 30 June 2010 £m
Travel	4.7	4.1
Professional fees	5.5	3.5
Information technology and communications	2.7	2.2
Deferred acquisition costs charges	2.2	2.0
Amortisation of intangible assets (note 7)	0.5	-
Operating leases	2.5	2.0
Premises related costs	1.1	0.8
Insurance	0.6	0.6
Auditors' remuneration	0.6	0.6
Depreciation of property, plant and equipment	1.3	1.3
Other expenses	1.2	1.0
Total other expenses	22.9	18.1

 4) Taxation

	Year ended 30 June 2011 £m	Year ended 30 June 2010 £m
Current tax:
Corporation tax on profits for year	60.2	54.6
Overseas corporation tax charge	1.3	0.6
Adjustments in respect of prior years	(1.7)	3.7
Total current tax	59.8	58.9
Deferred tax arising from origination and reversal of temporary differences:
Current year	(4.1)	(2.3)
Total tax charge for the year	55.7	56.6

Factors affecting tax charge for the year	Year ended 30 June 2011 £m	Year ended 30 June 2010 £m
Profit before tax	245.9	217.2
Tax at the blended UK tax rate of 27.5% (2010: 28%)	67.6	60.8
Effects of:
Expenses not deductible	0.4	3.2
Deduction in respect of vested shares / exercised options (Schedule 23 Finance Act 2003)	(7.6)	(7.1)
Deferred tax arising from origination and reversal of temporary differences	(4.1)	(2.3)
Overseas taxes, net of overseas tax relief	0.4	0.3
Other	0.7	(2.0)
Adjustments in respect of prior years
Current tax	(1.7)	3.7
Total tax charge for the year	55.7	56.6

	Year ended 30 June 2011 £m	Year ended 30 June 2010 £m
Current tax on share-based payments	-	-
Deferred tax on share-based payments	0.6	2.1
Deferred tax on available-for-sale assets	0.3	(0.4)
Total charge recognised in equity/other comprehensive income	0.9	1.7

On 23 March 2011 the Chancellor announced a reduction to the main rate of UK corporation tax to 26% with effect from 1 April 2011. This change became substantially enacted on 29 March 2011 and therefore the effect of the rate reduction has been reflected in the figures above.

5) Earnings per share

Basic earnings per share is calculated by dividing the profit after tax for the financial year attributable to equity holders of the parent of £189.0m (2010: £160.0m) by the weighted average number of ordinary shares in issue during the year.

Diluted earnings per share is calculated as for basic earnings per share with an adjustment to the weighted average number of ordinary shares to reflect the effects of all dilutive potential ordinary shares. There is no difference between the profit for the financial year attributable to equity holders of the parent used in the basic and diluted earnings per share calculations.

Reconciliation of the figures used in calculating basic and diluted earnings per share:

	Year ended 30 June 2011	Year ended 30 June 2010
Weighted average number of ordinary shares used in calculation of basic earnings per share	673,317,931	669,926,744
Effect of dilutive potential ordinary shares - share options/awards	36,585,155	40,484,600
Weighted average number of ordinary shares used in calculation of diluted earnings per share	709,903,086	710,411,344

6) Dividends

An analysis of dividends is as follows:

Group and Company	2011	2010
Dividends declared/proposed in respect of the year:
Interim dividend declared per share (p)	4.16	3.66
Final dividend proposed per share (p)	10.34	9.34
Dividends paid in the year:
Interim dividend paid (£m)	29.1	25.0
Interim dividend per share (p)	4.16	3.66
Final dividend paid (£m)	64.3	57.2
Final dividend per share (p)	9.34	8.34

In addition to the £93.4m (2010: £82.2) dividends paid to equity holders of the parent, the Group also paid £0.3m (2010: £0.4) of dividends to non-controlling interests.

Dividends are recognised in the accounts in the year in which they are paid, or in the case of a final dividend when approved by the shareholders.

On 12 September 2011 the Board proposed a final dividend of 10.34p per share for the year ended 30 June 2011. This has not been recognised as a liability of the Group at the year end as it has not yet been approved by shareholders. Based on the number of shares in issue at the year end which qualify to receive a dividend, the total amount payable would be £72.2m (2010:£64.3m).

7) Goodwill and intangible assets

Group	Goodwill £m	AEMM fund management relationships £m	AEMM brand name £m	Other intangible assets £m	Total £m
Cost
At the beginning of the year	6.7	-		-	6.7
Additions	-	-	-	2.6	2.6
Acquisitions (note 9)	50.8	39.5	1.8	-	92.1
Disposals	-	-	-	-	-
At the end of the year	57.5	39.5	1.8	2.6	101.4
Accumulated amortisation and impairments
At the beginning of the year	-	-	-	-	-
Amortisation charge for year (note 3)	-	(0.4)	-	(0.1)	(0.5)
Impairment charge for the year	-	-	-	-	-
Disposals	-	-	-	-	-
At the end of the year	57.5	39.1	1.8	2.5	100.9
Net book value
At the beginning of the year	6.7	-		-	6.7
FX revaluation through reserves (i)	1.2	1.0	-	0.1	2.3
At the end of the year	58.7	40.1	1.8	2.6	103.2

 (i) FX revaluation through reserves is a result of the retranslation of USD denominated intangibles and goodwill.

Goodwill

Goodwill represents the amount by which the fair value of consideration paid for an acquisition exceeds the fair value of the net identifiable assets of the acquired business on the acquisition date. Consideration represents the fair value of assets given, equity instruments issued and liabilities incurred on the acquisition date.

Goodwill is carried in the Statement of Financial Position at cost less accumulated impairment losses. Goodwill has an indefinite useful life, is not subject to amortisation and is tested for impairment annually or whenever there is an indication that the carrying amount may not be recoverable based on management's judgements regarding the future prospects of the business, estimates of future cash flows and discount rates.

The goodwill balance within the Company at the beginning and the end of the year was £4.1 million and related to the acquisition of the business from ANZ in 1999. Additional goodwill arising in the Group at the beginning of the year relates to the Dolomite acquisition in 2008.

The significant addition to goodwill during the year resulted from the acquisition of Ashmore EMM LLC on 31 May 2011 which is described in further detail in note 9. This addition of £50.8 million ($83.5 million) arising on the acquisition is attributable principally to value expected to be derived from the acquired platform through future growth and additional business from new clients, and the value of the assembled workforce.

The business of the Group is managed as a single unit, with asset allocations, research and other such operational practices reflecting the commonality of approach across all fund themes. Therefore, no further split into smaller cash generating units is possible, and the impairment review is conducted for the Group as a whole.

The annual impairment review of goodwill was undertaken at 30 June 2011. No impairments were deemed necessary. When assessing the appropriateness of the carrying value of goodwill at year end, the recoverable amount is based on value in use calculations. The calculation is based on the forecast future profitability and cash flow projections.

As the AshmoreEMM acquisition was made only one month prior to the balance sheet date, the valuation model used for the acquisition was the basis of the value in use calculation. The key assumptions of the model, on which management based their 5 year projections, were a long term growth rate of 2.5%, reflecting the expected fund flows and growth of the AuM, and a discount rate of 13.0%. Management reviewed the key assumptions used in the model and consider them to still remain valid as at 30 June 2011.

There has been no gross impairment of goodwill to date.

AshmoreEMM fund management relationships and the AshmoreEMM brand name

The AshmoreEMM fund management relationships and the AshmoreEMM brand name are separately identifiable intangible assets acquired as part of the acquisition of AshmoreEMM (note 9).

Ashmore engaged an independent third party valuation expert to value these assets as part of the acquisition. They were valued at the present value of the expected future cash flows resulting from the assets over their useful lives and were discounted using the Group weighted average cost of capital of 13.0%. They are being amortised over their useful lives which were also estimated based on the work of the valuation expert. Their estimated useful lives are 8 years for the fund management relationships and 10 years for the AshmoreEMM brand name. The Fund management relationships intangible comprises the profit expected to be earned from existing clients of AshmoreEMM. The AshmoreEMM brand name is being actively used through the co-branding of the subsidiary since the acquisition. The carrying amounts of the assets in the Statement of Financial Position are based on their historic costs less amortisation and accumulated impairment losses.

Other intangible assets

In addition, in order to incentivise Amundi, who were formerly a shareholder in EMM, to retain existing AuM within AshmoreEMM and to further increase AuM there is an incentive fee payable after three years tied to the level of such AuM at that time. As the purpose of this is to benefit the Group going forward rather than being a payment for past services, it has been treated as a separate purchased intangible asset rather than as part of the acquisition.

8) Own shares

The Ashmore 2004 Employee Benefit Trust (EBT) was established to act as an agent to facilitate the acquisition and holding of shares in the Company with a view to facilitating the recruitment and motivation of the employees of the Company. As at the period end, the EBT owned 24,555,042 (2010: 36,007,445) ordinary shares of 0.01p with a nominal value of £2,455.50 (2010: £3,600.74) and shareholders' funds are reduced by £48.7m (2010: £40.2m) in this respect. It is the intention of the directors to make these shares available to employees by way of sale through the share based compensation plans. The EBT is periodically funded by the Company for these purposes.

9) Acquisitions

Emerging Markets Management LLC

On 31 May 2011 the Group acquired an effective 62.94% stake in Emerging Markets Management LLC which was subsequently renamed Ashmore EMM LLC ("AshmoreEMM") an emerging markets equities investment management company established in 1987 and based in Arlington, Virginia (close to Washington DC).

The acquisition was in line with Ashmore's strategy to grow its equities investment theme which at the year end represented approximately 15% of the combined AuM. AshmoreEMM expands and diversifies Ashmore's product offerings, revenue streams and client base both by geographic location and client type.

The total fair value of purchase consideration was £93.0 million (US$153.0 million), consisting of an upfront cash payment of £49.5 million (US$81.5 million), satisfied from Ashmore's existing cash resources, the issue of 4,359,437 new Ashmore ordinary shares valued at £15.4 million (US$25.4 million) and contingent consideration valued at £28.1 million (US$46.1 million). The number of shares issued as part of the initial consideration, which are subject to certain trading restrictions for three years, was fixed at 31 May 2011 based on the average trade price over the previous ten days. Issue costs of the shares were negligible.

The contingent consideration represents a potential earn out payable in three annual instalments in December of 2011, 2012 and 2013, dependent on AshmoreEMM management fee revenues for those years. The potential undiscounted value of all future payments that the Group could be required to make under this arrangement is between nil and a maximum of £73.8 million (US$118.4 million). The fair value of the contingent consideration was calculated by reference to possible scenarios, weighted according to management's estimates of their probabilities and discounted using the Group's weighted average cost of capital of 13.0%. The undiscounted value of the estimated payments is £33.4 million (US$55.0 million). At maturity, contingent consideration will be settled using a combination of cash and new Ashmore ordinary shares at the prevailing market price. Ashmore have the option to pay up to 25% of such consideration as equity.

Acquisition related expenses of £1.3 million (US$2.2 million) have been charged to the income statement in the period to 30 June 2011 and included in other expenses - professional fees (note 6).

Tangible net assets acquired had a fair value of £13.8 million (US$22.7 million) on acquisition. No fair value adjustments were made to the carrying value of the tangible net assets. Trade receivables have not been discounted as they largely represent accrued management fees which are considered fully recoverable.

The goodwill of £50.8 million (US$83.5 million) arising on the acquisition is principally attributable to the value expected to be derived from the acquired platform through future growth, additional business from new clients, and the value of the assembled workforce. No goodwill has been allocated to the non-controlling interest.

Of the goodwill arising on acquisition, £18.4 million (US$30.3 million) is deductible for tax purposes in the United States over a fifteen year period. This amount excludes the goodwill resulting from contingent consideration. To the extent that further consideration becomes payable, further goodwill will be recognised for tax purposes and amortised over the remaining part of the 15 year life of the goodwill. The deduction for the month (and year) ended 30 June 2011 was £0.1 million (US$0.2 million).

On acquisition, 19.2% of AshmoreEMM shares were fully vested and held by the employees and management of AshmoreEMM. Employees and management also held unvested shares representing 17.9%. As the unvested shares have performance conditions related to continued employment, these are accounted for as share-based payments in accordance with IFRS2: Share-based payment, which will result in an annual charge to the income statement in the period to vesting of £5.4 million (US$8.6 million). The NCI of £12.9 million (US$21.2 million) on acquisition represents the share of the identifiable assets and liabilities acquired attributable to the vested shares held by the employees and management of AshmoreEMM. The recognition of share-based payment charges over the five year period to vesting will lead to an increase of the NCI to 37.06%, although the actual percentage held by the NCI may vary as a result of the sale of vested NCI shares, the forfeiture of unvested units or the issue of further awards of unvested shares in line with the Group's longstanding equity compensation culture.

The discount applied to the contingent consideration will unwind until the time when the final payment is made in December 2013. The amount charged to the consolidated statement of comprehensive income for the year ended 30 June 2011 was £0.5 million (US$0.7 million). This unwind of the discount will result in a charge to the income statement of £3.7 million in FY2011/12, £1.2 million in FY2012/13 and £0.2 million in FY2013/14.

The revenue included in the consolidated statement of comprehensive income since 1 June 2011 contributed by AshmoreEMM was £3.9m. AshmoreEMM also contributed profit before tax of £2.1m over the same period.

Had AshmoreEMM been consolidated for the full financial year from 1 July 2010 to 30 June 2011, the consolidated statement of comprehensive income would show total revenue across the Group of £382.3m and profit after tax of £208.1m.

Subsequent Adjustment

Under IFRS 3, a measurement period of up to one year can be utilised to assess the valuation of net assets acquired as the result of the acquisition. Separate to the contingent consideration, there is a contracted adjustment to the initial share consideration scheduled for 30 September 2011, which is the only adjustment to initial consideration, goodwill and assets currently anticipated. This "true up" mechanism is designed to align the upfront purchase price paid with the revenue earning capability of the underlying AuM that existed at the acquisition date.

The following tables summarise the consideration paid for AshmoreEMM and the amounts of the assets acquired and liabilities assumed recognised at the acquisition date as well as the fair value at the acquisition date of the non-controlling interest in AshmoreEMM.

Consideration at 31 May 2011	As at 31 May 2011 £m	As at 31 May 2011 US$m
Cash	49.5	81.5
Equity instruments (4,359,437 ordinary shares of Ashmore plc)	15.4	25.4
Contingent consideration	28.1	46.1
Total consideration	93.0	153.0
Acquisition related costs	1.3	2.2
Recognised fair value amounts of identifiable assets acquired and liabilities assumed at 31 May 2011	As at 31 May 2011 £m	As at 31 May 2011 $m
Cash and cash equivalents	8.1	13.3
Property and equipment at net book value	0.4	0.7
Intangible assets (note 7)	41.3	68.0
Trade and other receivables	9.5	15.6
Trade and other payables	(3.3)	(5.5)
Defined contribution retirement benefit obligations	(0.9)	(1.4)
Total identifiable net assets	55.1	90.7
Non-controlling interest	(12.9)	(21.2)
Goodwill (note 7)	50.8	83.5
Total consideration	93.0	153.0

11) Capital commitments

	Group		Company
Undrawn investment call commitments	2011 £m	2010 £m	2011 £m	2010 £m
VTBC-Ashmore Real Estate Partners I, L.P.	5.0	-	-	-
Everbright Ashmore China Real Estate Fund	16.6	15.1	-	-
Ashmore I - FCP Colombia Infrastructure Fund	9.7	-	-	-
Ashmore Russian Real Estate Recovery Fund	-	4.8	-	-

During the year the Ashmore Russian Real Estate Recovery Fund was dissolved and the Group made a new commitment to the VTBC-Ashmore Real Estate Partners I, L.P., a real estate fund managed by an associate.

12) Post balance sheet events

There were no post balance sheet events that required adjustment of or disclosure in the financial statements for the year ended 30 June 2011.

13) Forward looking statements

It is possible that this document could or may contain forward looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could or other words of similar meaning.

Undue reliance should not be placed on any such statements because, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward looking statements. There are several factors that could cause actual results to differ materially from those expressed or implied in forward looking statements. Among the factors that could cause actual results to differ materially from those described in the forward looking statements are changes in the global, political, economic, business, competitive, market and regulatory forces, future exchange and interest rates, changes in tax rates and future business combinations or dispositions. The Group undertakes no obligation to revise or update any forward looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise.

14) Statutory accounts

The financial information set out above does not constitute the Group's statutory accounts for the years ended 30 June 2011 or 2010. Statutory accounts for 2010 have been delivered to the registrar of companies, and those for 2011 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2010 or 2011.

 

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